Why cash is better for car purchases

Thinking of raiding your savings account to buy a new car? It may be the best thing to do. However, before you ransack your money market account, be sure to figure out if depleting your investment will save you money. If you have great credit, you may qualify for a loan with a very low interest rate that would make financing worth it.

Buying a vehicle with cash is always guarantees that you will be paying less for your vehicle than if you finance it. You’ll be paying no interest. However, if you are planning to pay cash, don’t tell the car salesperson until you’ve struck a deal.

A dealer gets a cut of the profits on all loans arranged at the dealership, so most of them are not going to be happy if you are paying cash. Don’t even start talking about financing until you and the car salesperson have negotiated a price. This is a good rule of thumb if you’ve arranged your own financing a well. If the salesperson realizes they won’t get the dollars from arranging your financing, they are less likely to offer a great deal on the car.

Financial advisers almost always say that it is a good idea to pay cash for a car as long as you can’t invest the cash at a higher interest rate than the loan rate. For most investments, that’s a pretty high rate of return. And you’ll have to pay the monthly payments while the cash you would have spent is unavailable and earning interest. you don't qualify for a loan with a super-low rate, tell the dealer that you'd rather pay cash.

Just make sure when using money you have on hand that you are not exposing yourself to financial hardship should your income take an unexpected nosedive in the future.