Car Loan vs. Paying Cash?

May 23, 2010

Woman Buying CarIs it better to pay cash for a new car or take out a home equity loan? We do have the cash, but what's the best advice?

By dory from Joliet, IL



May 23, 20100 found this helpful

Check out Clark Howard's website at:

IF you don't need the credit history and have plenty of cash, why incur interest on a loan that you don't have to? Plus cars depreciate quickly.

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May 24, 20100 found this helpful

I don't buy new cars because as doon as you drive it of the lot it has depreciated so quickly. So I buy program cars from the dealer which are cars returned to the dealer from leases. But if you choose to buy new I would pay cash and don't fall for all the add ons such as extented warranties, paint protection,etc.


I would then put back in the bank every month what the car payment would have been. Saves a lot of money on interest rates.

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Gold Post Medal for All Time! 846 Posts
May 24, 20100 found this helpful

If you have the cash why waste money on interest payments? I would also suggest purchasing a car that is two to three years old (that will save you oodles of money) with as low of mileage as possible and pay "your" mechanic to inspect it whether or not you're buying it from a dealer or through a private sale.

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May 25, 20100 found this helpful

I would say that if you are looking to add to your credit score, get a loan. You will need at least 6 months of payments to affect your score. So I would put a lot of cash down so that I do not have many payments left. If you do not need to add to your credit score, I would pay cash. I would also not buy a used car. I would buy a new one. The reason being is that with a new car you are going to get at least a 3 year warranty on everything in the car up to 100,000 miles usually on drive, train, things like that.


The other thing is there are a lot of incentives on getting a new car verses a used car. Those will come off of the price of the car. The last two things are if you have cash, a lot of times you can get them to take quite a few thousand dollars off the price of your car. Many people do not know this. This is how we buy our cars. Cash sells at a dealership. We bought a brand new 2008 Pontiac Grand Prix, all leather heated seats and steering wheel, gps in the dash with touch screen. There are a lot of things that came with this car. It is what we wanted. They were asking $21,000. Anyway, we had cash because we had been saving for a new car. First they took all the incentives and rebates off the price which was about 5 thousand dollars, and brought the total price down to 16,000.


Then, because we had cash, we got them to take off another 4,000 making it 12,000 total now. We had a trade in that we already owned and we had paid off. We got 3,000 trade in for it, making this car only 9,000. Now we did not tell them that we had a trade in until we made the deal with the cash so as not to affect how much they would take off.

I said that there were two more things. Here is the last one. Because of the car being newer it had the newer safety features like side air bags and a gauge in the car that shows exactly which tire is low in air and by how much as well. Small things that you do not think about like that. Well it lowered our insurance on that car. Which is really something to think about when buying a car. No one wants an insurance payment as high as a car payment. For full coverage on two cars cause we have another car (a civic hybrid) we are paying $110 a month. We go through Geico so we pay that for 4 months cause you have 2 months with no payments. I hope that this has helped. I do not sell cars. I am chef, a mother, a wife, a friend, and walking book of useless information.

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