When you start thinking about buying a new car, it’s natural to wonder whether you should wait until you have the savings to buy outright or take out a loan. Both have their pros and cons, so it’s important to sit down and consider your options before making a decision.
Financial literacy for Australians is important – that’s why we’ve put together this detailed guide to help you decide whether buying a new car with cash or taking out a loan is the best choice for you
Advantages of Paying Cash for a New Car
There are some definite advantages to paying cash for a new car. Perhaps the most obvious one is that you won’t have to worry about making monthly loan payments. That can free up some extra cash each month that you can put towards other financial goals, like saving for retirement or building up an emergency fund.
Paying cash for a new car can also help you avoid interest fees and other charges that come with taking out a loan. In addition, if you ever need to sell the car, you won’t have to pay off any remaining balance on the loan, which could make it easier to get rid of the car if you’re in a pinch.
Disadvantages of Paying Cash for a New Car
Of course, there are also some disadvantages to paying cash for a new car. The biggest one is that you may need to put off buying a new car until you’ve had time to save up enough money. If you have your heart set on a certain model that’s only available now, waiting could be frustrating.
Another downside is that paying cash ties up a large amount of your savings, which could limit your financial flexibility in an emergency situation. Finally, if you invest your extra cash instead of using it to buy a new car, you could potentially earn more money in the long run than if you’d just paid cash upfront.
Advantages of Taking Out a Loan to Buy a New Car
If saving up enough cash isn’t an option or if you want to buy a car now rather than later, taking out a loan can give you the flexibility to do so. With most loans, you’ll have several years to repay the amount borrowed plus interest, which can make your monthly payments more manageable.
In addition, taking out a loan can help build your credit score by showing that you’re able to manage debt responsibly. This could come in handy down the line when you apply for other types of loans, like mortgages or personal loans.
Disadvantages of Taking Out a Loan to Buy a New Car
Of course, there are also some disadvantages associated with taking out loans to finance your new car purchase. For starters, unless you get 0% APR financing, taking out a loan almost always means paying interest on the amount borrowed – this can add hundreds or even thousands of dollars onto the total cost of your car over time.
Missed payments on your loan could also damage your credit score, making it more difficult and expensive to borrow money in the future.
Additionally, if you decide to sell the car before the loan is paid off, you’ll likely end up having to pay off the entire remaining balance all at once – which could be difficult (if not impossible) depending on your financial situation at the time.
So, should you buy a new car with cash or take out a loan?
Unfortunately, there’s no easy answer to this question – it ultimately depends on factors like when you need/want the vehicle, how much money you have available, and so on. It’s best to weigh up your options, compare them against your personal circumstances and make the best decision that works for you. Good luck!