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Should You Finance a Car or Pay Cash?

The car-buying process comes with a lot of decisions: make, model, color, private sale or dealer, and whether to pay cash or finance. If paying in cash is an option for you, it can seem like the best way to do it. But when you’re buying a car, there are plenty of situations where it can actually be beneficial to finance a car rather than pay cash – even if you can afford to. Here are just a few of the reasons to use an auto loan to purchase your next vehicle. 

Person getting an auto loan.

When it Would Limit Your Emergency Fund 

You might have a chunk of change sitting in the bank in savings. But if you withdrew enough today to pay for a new car in cash, what would happen if you found yourself in an emergency tomorrow? If you’d be out of luck because you spent all your savings, it might be better for you to take out an auto loan instead. Keeping a healthy emergency fund is critical to maintaining your financial future. Life has its ups and downs, and a well-stocked savings account can help you weather the storm. You don’t want to be left without a way to pay your bills if you’re out of work for a few months. Keeping that money in the bank. Using a loan instead can give you the cushion you need to feel secure. 

 

Financial analysis.

 

When You Could Make More With Your Money 

Think about what that chunk of money could be doing instead of paying for the car. What would the returns be if you invested it in the stock market, used it to start a business, or put it toward a down payment on a house? Investing that cash instead can get you more earnings in the long run, while still getting the car you need now to move you down the road. 

 

Image of a dropping interest rate.

 

When You Qualify for a Low Interest Rate

If you have good credit and can qualify for a super-low interest rate, it doesn’t make sense to pay in cash when you’re basically spending nothing in interest. It frees up all the money that you would have spent to pay cash, letting you do double duty with your money without spending much more than you would have otherwise. 

 

When You Don’t Have Much Credit History 

A car loan can be a great way to establish your credit history when you’re just starting out. Credit earned from paying off auto loans can boost your score as much as or more than using a credit card. Good payment history with an auto loan can put you in a position to buy a house sooner, or take out personal loans to finance your dreams. 

 

When it’s your time to achieve your financial goals, whether that meansbuying a car, buying a home, or beefing up your savings account, RMCU can help you out. Get in touch today to talk to a loan specialist, and hit the road sooner with financing from your community credit union. 

Download the Auto Loan Basics eBook

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