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Buy car with cash: good or bad?

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Buy car with cash, good or bad? Should buy it with cash or buy it with car loan? Here we bring out all the advantages and disadvantages of buying a car with cash and with car loan. Different earnings will be gained in different kind of situations. Therefore, consider some of the facts discussed here and find one best solution that best fit the situation.

Buy a car with cash is very simple and straight forward. If the car is $20,000, you walk-in to show room, choose the car you want, pay $20,000, and drive the car out from the show room. No car loan interest costs will be involved. What you lost over time is only the depreciation of the car and this does happens even you buy the car with auto loan.

Considering you are actually saving the $20,000 in bank which gives you the return of 3.5% interest each year. Let’s calculate the myth of how this money going to work over next five years.

  • Cash paid for car: $20,000
  • Cost for car loan: $0
  • Earning lost on cash: $20,000*3.5%*5 years = $3,500
  • Total cost of the car: $23,500

What if you keep the $20,000 in the same place and go for car loan?

  • Cash paid for car: $0
  • Cost for car loan: 4.5% APR *60 months = $2371.6
  • Earning on cash: $20,000*3.5%*5 years = $3,500
  • Total cost of the car: $22,371.60 – $3,500 = $18,871.60

The total cost of the car minus $3,500 because that is the earning from the $20,000 if it remains untouched. If consider this case by logical, $20,000 with 3.5% return on invest a year sounds less than $20,000 with 4.5% APR car loan a year, but if you go through the calculation, it seems buying a car with cash end up paying more after 5 years. In some cases, refinancing car loans into home loan will also bring you some savings. What do you think?

Intangible advantages of buying cars with cash

We did not say that buy car with cash isn’t good. This is just case by case. There are often some intangible advantages we did not see when buy a new car or used car with cash.

  • May get good cash rebates or discounts from dealers
  • Need no go through all the process to enquire loan
  • No monthly car payments! Have a peaceful mind and don’t have to worry when the car loan payment is due. Overdue (forget to pay the loan) will cost extra interest.

This calculation is base on the car loan system in the United States and some other countries. For car loan system in some of the countries in Asia like Malaysia, Singapore, Thailand, and some countries that has the similar auto loan system, you can read this article: buy car with cash in Malaysia, smart or stupid? Here is also some other interesting related articles:

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