Is It Better to Pay Cash or Finance a Car? Pros & Cons Of Each

Is there a ‘best’ way to pay for a car? Is it better to pay cash or finance a car instead in Canada?

 

We asked our auto loans team to outline the pros and cons of using cash vs a car loan for your next purchase.

Pros Of Financing a Car Loan

Pros of using a car loan to buy your next car include:

 

• Spreads the Cost: A car loan spreads the cost of your car over a fixed term of 2-8 years which makes it much more affordable.

 

 

• Can Afford More: Unless you have significant savings, you will be able to afford a much nicer or newer car when using a car loan rather than savings.

 

• Doesn’t Wipe Savings: Using an auto loan means just needing some cash for the down payment but otherwise, your savings are safe.

 

• Payments Improve Your Credit Score: If you’re rebuilding credit or need a little help boosting your score, a car loan will help with that. If you're looking for some great tips to improve credit quickly, click here.

 

 

Cons of Financing a Car Loan

Cons of using a car loan to buy your next car include:

 

• Interest: Car loans come with interest. However low the rate is, the loan will still cost you money over the term.

 

• Monthly Payments: Car loans also involve a fixed monthly payment over that term, meaning you’ll always have an extra outgoing.

 

• Another Debt to Your Name: If you plan on getting a mortgage or loan later, an auto loan is an extra debt that will need to be taken into account.

 

Pros of Paying For a Car With Cash

Pros of using cash to buy your next car include:

 

• Free and Clear: Once paid for, the car is yours with no loan secured on it. Once you own the car, you can modify it, change the colour, add a body kit, or change anything you like.

 

• No Monthly Payments: With no car loan, there’s no monthly loan payment.

 

Cons of Paying For a Car With Cash

Cons of using cash to buy your next car include:

 

Drains Savings: Depending on how much you have saved, buying a car with cash could use up a significant portion of your savings.

 

(Potentially) Limited Budget: Unless you have a lot saved, the budget for the car will be limited by how much cash you have, which can be less than you could get with a loan.

 

No Credit Score Improvements: Without a monthly payment, you’ll get no boost for your credit score, which is fine if it’s already good but won’t help either way.

 

Where to Buy a Car in Ontario

As you can see, there is no one right answer to whether you should pay cash or finance a car, just the way that works best for your circumstances.

 

If you have sufficient savings to buy the car you want with what you have saved and have money left over, that could work perfectly.

 

If you don’t have that kind of money put away, perhaps a car loan would be the right choice.

 

Either way, our team is always here to help!

 

If you're ready for a car loan, we'd love to help with that! simply fill in the form below to get started.