Looking for a new-to-you used car can be stressful, but finding one can be exciting. By that point you’ll have sifted through and analyzed a wide range of information, but will still have one important decision to make — how to pay for your car. At the root of that question is often a single choice: should you pay cash for your new vehicle or finance that purchase price?
Advantages and disadvantages of paying cash
When we say “pay cash,” we don’t really mean unfurling a wad of twenty-dollar bills. You should never do that. By paying cash, we mean just paying for the entire purchase price of your vehicle all at once in a single transaction as opposed to stretching payment for the vehicle over a period of time. Stretching out payments over time with interest accruing during the total period of payments is what we refer to as financing.
What are the advantages, then, of paying cash — paying for your car up front and all at once? The primary advantages of paying cash are obvious. First, the car will be completely paid for and you’ll have no further liability for the purchase price beyond that date. Second, the total cost of the purchase price will be capped at the actual original purchase price (plus registration and licensing fees, of course) without any additional charges for interest.
There are, on the flip side, certain disadvantages of choosing to pay cash to car dealers in Calgary. There are two that are particularly important. First, if you’re intent on paying cash, you’re limited to selecting cars that you can afford with cash on hand. Second, once you’ve paid for that car, you’ll have no access to any of that cash. Your bank account will be significantly depleted, if not emptied entirely.
Considering the advantages of paying cash, then, what are the potential advantages of financing a car in Calgary?
Advantages and disadvantages of financing
Financing is essentially borrowing money to purchase your car, and paying back those funds over an agreed-upon period of time with additional interest to the financier. That financier’s incentive to help you buy your car is to earn those additional interest payments over time. In many cases, financing may be offered by the used car dealership in Calgary itself, or banks, or credit unions.
There are two primary advantages of financing a car as opposed to paying cash. First, you may be able to afford a more expensive — and presumably a higher quality — car. If you’re limited to purchasing a $5,000 car for cash, you’ll end up with a $5,000 car at best. But with financing, you may be able to use some or all of that $5,000 as a downpayment on the car, but finance an additional amount of purchase money over time. As long as you and your financier are confident in your ability to fund the monthly or bi-weekly payments on the financed money, you’ll end up with a better car without being out of pocket any more than $5,000 at the very outset.
Second, if you finance your used car in Calgary without using all your cash as a downpayment, you’ll still have access to that cash for other needs that you may have. Just how important that factor is will depend entirely on your personal circumstances. How important are the other things you might do with that cash compared to the interest you would have to pay to finance the purchase price of your car?
Car dealers in Calgary will quickly be able to explain the financial implications of paying cash versus financing. As you zero in on your preferred car, ask the dealer to tell you the cash price and to explain what financing options are available. Even before you begin to narrow your focus on particular cars, ask your dealer, bank, or credit union what financing they may be able to make available, and what you might qualify for and be able to afford.
Once you have all that information in hand, you’ll know exactly what options you have, and will be in a good position to choose between paying cash and financing. If you have any questions at any time, contact a reputable used car dealership in Calgary whose staff will be happy to help.