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Should you pay cash or finance your new car?

When you start the search for a new or second-hand car, the first thing you need to think about is how much you’re going to spend. For the most part, the decision will come down to how much of your own money you’re prepared to spend and how much you’re going to borrow from a lender.

When determining whether you should pay all cash or look to finance the car is always going to be based on your personal situation and there are positives and negatives to both approaches.

Paying cash

The biggest advantage of only paying cash is that you will own the car outright. The other benefit is that you won’t have to pay interest and that could save you a substantial amount of money over the lifetime of the loan.

The main drawback is obviously that you need to save up the entire amount prior to purchasing the vehicle. Depending on your financial situation, that could be many years that you’re either not going to have a car, or where you’ll be driving an older car that isn’t ideal for your situation.

Financing a car

When you finance a car, the best part is you can start making the most of it from day one. There are different types of finance options for cars and some might even be available without putting any money down – assuming you meet certain criteria and have a stable source of income.

On the flipside, from the moment you take control of the vehicle you will be paying interest, which can add up over the lifetime of the loan.

The other advantage of buying with finance is that it might actually lead to you paying a lower price for a car – especially for new vehicles. While the common perception is that if you pay with cash, you’ll get a better deal, in reality, dealers are often incentivised to sign up customers to their finance packages.

While cash buyers might have an advantage in the negotiation process with second-hand cars, it’s unlikely to help with new cars.

If you are savvy about your car loans and speak to a finance broker, you might be able to secure good loan terms and find a middle ground where you’re getting access to your vehicle today, but won’t end up paying as much as you would if you looked to use dealer finance.