Is It Better To Pay Cash Or Finance Your New Car?

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When buying a car, there are always two payment options that you can choose from- financing or paying cash for a car. Both these options have their pros and cons. It is for you to decide which option sounds good enough to go forward with. If you are yet to decide how you will manage the payments for the car that you buy, this article is for you. In this article, we will be sharing with you the details of paying cash and financing a car to help you compare both options and choose what suits you the best. You can also check with your dealership to find out their preferred method to avail of lower prices and the best deals. 

Financing A Car: When Is It Better To Finance Your Car?

The first option that we will be looking at for buying your car is financing. Even if you are buying your dream car, you definitely would not want to spend all your hard-earned savings on it. A good alternative to cash payment is auto financing which allows you to free up your cash for many other purposes as we will discuss further. When you choose the option of financing, you will not have to make any payments upfront when you buy your car. That is right. There are zero down payment options that allow you to purchase your car at zero payment and pay the entire cost in smaller installments over a period of time. This is not only a good option for people who do not have any major savings but also for people with saving. It also allows you to upgrade and purchase a better car. If your credit scores are high, you can also get your car financed at low-interest rates. The catch here is to choose a financing option where you can easily manage the monthly payments. The tens of thousands of dollars that you could spend in cash will easily be broken down into smaller payments that would not really affect your monthly expenses. You can easily find the right financing option for you by using an online car loan calculator.

The following are some reasons why you must finance your car:

  • The cash you save by financing your car can be used by you for investing in other possible assets which give you higher returns. 
  • You can use this amount and set aside an emergency fund for something that could come up after you purchase your car.
  • You can always build up your credit score by getting a car loan. This will not only make your credit history solid with regular repayments but also make your borrowed debts more diversified. 
  • Some dealerships also offer you a better deal for your car if you choose to finance your car through their finance department. 

Paying Cash For A Car: When Is It Better To Pay Cash For A New Car?

If you are buying a car with cash, Canada dealerships might offer you certain discounts and deals that might suit your finances. If you have enough saved u even after keeping aside an emergency fund, you can opt for cash payment for your car. The following are some reasons why you must pay for your car in cash:

  • As mentioned, your dealership might offer you discounts like cashback deals and rebates. This helps you save on the overall cost of your car. 
  • No matter how low the lowest interest rates go, they will always be more than paying no interest and no additional fees. By paying cash for a car, you avoid all these costs. 
  • Paying in cash is hassle-free, there are no agreements to be signed, no repayments or budgets to be planned, or any loans to be managed. 
  • In case you borrow a car loan and are unable to repay, there will be a negative impact on your credit score. Paying in cash helps you avoid this issue. 
  • You will also have better options for buying used cars. 

Financing A Car V/s Paying Cash: Which Is Better?

Financing your car or paying in cash: which options should you pick when buying a car? Let us quickly compare both these options for paying for your car to help you choose the better of the two options. 

Paying Cash For A Car Financing A Car
There is no load on your finances for paying any debt.  You have to pay a lesser amount upfront and have savings to manage your other expenses. 
You end up paying less for your car since no interest is involved and you might also receive discounts for paying the entire amount upfront.  Borrowing a loan gives you a chance to improve your credit report.
There are no chances of falling into a debt trap.  Spreading your payments over a longer duration allows you to upgrade. 

Factors To Consider If You Wish To Finance Your New Car

Suze Orman quotes, “Just because you can afford it, doesn’t mean you should buy it.” We add that you could always finance it on the right terms. Now that you have compared both options to pay for your car, you must take a look at the factors to consider if you decide to finance your new car. 

  • Is your credit score high enough and the debt-to-income ratio low enough to qualify for a low-interest car loan? If the answers to both these questions are yes, you must go ahead with financing your new car. If your credit report is not in a good condition, you might end up financing your car for a higher interest rate which will end up harmful to your financial health.
  • You must follow the 20/4/10 rule of borrowing a car loan. Sure, a zero down payment looks tempting but if you pay 20% of the amount as a down payment and borrow your loan for 4 years then you will have to pay less than 10% of your income on this loan.
  • Consider your credit utilization ratio on any other loans and debts before you apply for a car loan. This will help you get a better deal for financing your car. 
  • Always calculate the repayments in advance so you can plan your budget easily. Make sure the amount of your payment is only as much as you can pay easily. 


When you plan on buying a new car, there are certain factors that you have already considered. The last thing you want to do is exhaust your savings on your dream car. Auto financing can be of help in such situations. In this article, we have compared for you the two options you have when you buy a car- paying in cash or financing. We have looked at the various aspects of both options. The final decision of which payment method to choose will depend on how you weigh the different factors. We hope this article will help you make an informed choice when buying your next car. 


If you are falling short on money, when buying a new car, financing can be a great option. While we have compared making cash payments and financing a car, you might have a few queries. Find answers to all your doubts in this section. We have answered here some of the most commonly asked questions related to the options you have when buying a car

Can I buy a car with cash and then get financing afterwards?

It is not really possible to finance your car after you have made the complete payment in cash. But you can always pledge the car as security against which you can receive the loan. 

When I buy a car that comes with cash back, is that subtracted from the loan amount?

Yes, if you buy a car with cash back, the amount is subtracted from the loan amount. 

Do dealerships prefer cash or finance?

Some car dealerships prefer that you make your payments in cash and also offer the best deals on doing so. There are also many dealerships that suggest financing your car through their finance department. 

Do I have to sign a loan application if I buy a car with cash?

If you can pay for your car in cash in a single payment, there is no need for you to sign any loan applications. 

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