Is It Better to Finance a Car or Pay Cash?

So, you are considering buying or leasing your dream vehicle and have already decided on the model and features you prefer. You’ve even pictured driving around Norwood on a perfect summer evening after work while jamming to your favorite music playlist.

Still, you may have to make one more vital decision: assessing the payment options available before heading to the dealership to drive your new ride home. You may either opt to get financing or pay cash. While the decision entirely relies on your preferences, we explain these two payment options plus their benefits and highlight when it may be better to opt for them.

Cash Payment Option

Toyota Rush 1.5 G 2021 by RL GNZNLZ is licensed with CC BY-SA 2.0

Cash payment is a simple process where you make a single payment to a car dealership. The most popular payment method is through a cashier’s check from your bank or credit union. Another method is the Automated Clearing House (ACH) transfer, which instantly wires the cash upon request.

Benefits of Cash Payment

Cash payment is beneficial because:

• It helps you stick to your budget. Cash payment allows you to stick to your budget since you have a spending limit. A spending limit may help you avoid distractions from other models exceeding your spending limit range.
• It’s an Interest-free purchase option on a depreciating asset. Cars tend to depreciate, so by purchasing one in a single payment, you’ll fully own the car at its peak value, unlike financing, where you’re repaying for the vehicle in installments as its value depreciates.

When Is It Best To Pay Cash? 

Cash payment may be the ideal choice when:

• You have other savings and investments. With additional savings still intact, you can still maintain your financial security, which may be helpful in case you encounter a financial emergency.
• Your credit score is low. A low credit score means you are less likely to get financing approval. The monthly payments may be excessively high if you get approval, which isn’t worth it for a car that might depreciate before completing repayments.

Car Financing Option

Car financing is an auto loan that a financial service provider provides to an individual to help them purchase a vehicle in a series of manageable installments rather than a one-time payment. Like other loans, you’ll have to pay back the loan plus the interest accrued and the lender fees over the loan term.

Typically, the loan term is calculated in monthly installments and may range from 24-84 months. You may also agree on the loan repayment term and monthly payments with the financial service provider.

Types of Financial Service Providers 

Financers may also be known as lenders or creditors. They include:

• Banks: You can get a car loan from local and national banks. Loan rates tend to vary, so you’ll need to research the bank with the most favorable rates.
• Online lenders: They are an alternative to traditional banks and may offer quick loan approval.
• Manufacturer financing groups: These are financial companies by car manufacturers such as Toyota Financial Services. Financing from manufacturer groups may be ideal if you have minimal to no credit.

Eligibility Criteria

Financial service providers may assess your credit report and credit score to determine your eligibility for an auto loan. Credit reports contain your financial information, such as your bill payment history, loans, and debts. Financers calculate your credit score using the information on your credit report. The credit score ranges between 300 to 850 to rate your creditworthiness.

The credit report and credit score may determine whether they’ll approve your loan request and the interest rate to charge you. With higher credit scoring, you can quickly secure car financing. Higher credit scores also allow you to secure lower interest rates on your car financing. If you have a minimal credit score, you may still qualify for a loan, but the interest rates may be high.

Benefits of Car Financing

The following are the pros of car financing:

• Progressive payment options: car financing allows you to pay for your ride progressively, and it’s also a great choice if you want to maintain your savings for other investments or expenses.
• It may build your credit score: Keeping up with your monthly repayments may help you improve your credit score. Timely repayments may favor you to get better financing loan options in the future when you may need to purchase another car.
• You may get incentives: Car financing from manufacturers and dealerships sometimes offers incentives such as 0% financing. These incentives may help you avoid paying high-interest rates in the long run.
• Enables you to compare the car value with the repayment amount: You can compare the value of the car you want to buy versus the amount you would pay in loan payments. This comparison can give you room for negotiation with your lender on the interest rate and repayment duration when done right.

When Is It Best To Finance?

Financing may be an excellent choice if:

• You want to increase your credit score. If you make your repayments in time, you’ll increase your credit score, positively impacting your credit record.
• It has low-interest rates. If the interest rate is low, you may opt for financing since the extra costs won’t be significant. Low-interest rates can also mean low monthly payments, which will allow you to pay other expenses quickly.
• You have minimal savings. Financing may be a perfect choice if you have minimal savings to purchase a car. However, you may need to select appropriate monthly repayment options that you can comfortably pay while meeting your other needs.

Get Financing at Nucar Toyota of Norwood

At Nucar Toyota of Norwood, we are here to help you make the best financial decision on your car-buying journey. We understand the hassle of looking for your dream vehicle only to be discouraged by costly financing options. That is why we offer economical financing rates and terms on our cars.

Our financing experts are ready to guide you through the financing process to own your dream car in Norwood. Reach out to us if you have any queries regarding the two payment options above. You can also apply for financing today and get approved for an auto loan as soon as possible.

We also offer an extensive lineup of the best pre-owned vehicles. We offer best-in-class warranties like our 7-Day/350-Mile worry-free money-back guarantee! If you change your mind for any reason, we will take the vehicle right back at no cost to you! Find one you like, but you’re not close to Norwood? We will deliver your pre-owned vehicle across the New England area directly to your home (Delaware excluded). Contact our sales team for more info and to schedule your test drive today!