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Buying a new vehicle is one of the biggest financial commitments you can make, and educating yourself about different payment options will make your decision-making process as smooth as possible. While car loans and dealer financing are popular options, there are a number of benefits to paying cash for a car if you have the means. Here are eight of the best reasons to buy your car with cash.
By paying cash up front, you won’t incur any interest fees. Lenders apply a loan interest rate on the basis of your credit score, and auto loan rates currently run between about 2.5% and 15% for the annual percentage rate. With an APR attached to your loan, you’ll end up paying more than the initial loan amount, usually by quite a bit. When you pay with cash, you pay for the car’s value and nothing more.
Simplified Monthly Budget
Besides helping you avoid paying more than your car is worth, paying with cash also helps you avoid monthly payments. Reducing your number of monthly bills helps keep your finances simple and uncomplicated. Late or forgotten payments can also affect your credit score, and it’s always nice to have one less worry on your mind.
Another benefit to buying a car outright is that you have total control over the parameters of your insurance policy. A lienholder might require a certain level of comprehensive and collision coverage to protect the investment, which means your premium could be higher than you want it to be. When you own the car yourself, your coverage is entirely up to you.
Lower Purchase Price
In some cases, you may even get a better deal if you have cash in hand. The simplicity of a cash transaction helps everyone involved avoid extra paperwork, time and hassle. A seller might consider this ease of sale enough to knock down the price of the vehicle or award the car to you over another buyer.
No Negative Equity
By paying cash for a car, you avoid risks associated with negative equity. Negative equity is a scenario that happens when you owe more for a car than what it’s worth. Sometimes people call this being “underwater” on their car loan, and it can create a financial challenge if you need to sell or trade the vehicle down the road.
Title Transfer Ease
Having a “free and clear” title to a vehicle allows you to resell the vehicle without the need to satisfy or pay off the loan. A loan payoff can sometimes take several business days to go through, which might become an inconvenience when the time comes to sell, especially if you have an eager buyer.
No Credit Check
Under a cash payment scenario, there is no need for a dealer or a private seller to evaluate your credit history. This is especially nice if you have low credit or are early on in your credit history and still working to build a solid score.
No Risk of Repossession
Perhaps best of all, when you own a vehicle outright you’re never at risk of repossession and all the headaches that come along with it.
Tips for Buying With Cash
If you’ve decided a cash purchase feels right for you, there are a couple of tips to keep in mind:
- Hold off on telling the seller or salesperson you’re paying cash. Perhaps indicate early on in the conversation that you’re reviewing your options and deciding between cash and financing. A dealer might prefer a financed deal because they receive a portion of the proceeds.
- Exercise caution when meeting up for any deal. Usually, it makes more sense to explore alternate ways to “pay cash” as opposed to actually carrying a wallet full of bills, especially if you’re buying from a private seller who you haven’t yet met in person.
- It’s similarly wise to only transfer money through secure services and confirm the recipient’s identity before transferring money. Examples of cash alternatives include cashier’s checks, paying via wire transfer or using an application like PayPal, Venmo or Zelle. Be mindful of any fees involved in these services — for example, PayPal charges a 2.89% fee on the receiver’s end when being paid for goods and services.
There’s a certain level of satisfaction in knowing that you have sole possession of your vehicle, and for folks who have the financial resources available, paying cash is a great way to put your mind at ease and fully embrace the freedom of the road.
Are you ready to take the next step with your vehicle purchase? Head over to KSL Cars and browse the region’s best online car lot.