Buying Tips

Car Loan Vs. Cash Payment: What’s Better?


When it comes to buying a car, you have two options. You can pay cash upfront or you can finance it.

When you choose to pay cash, it’s a simple transaction done before you take the vehicle into your possession. It’s one large, individual payment as opposed to several, smaller payments over a period of time (as is the case with financing).

When you choose to finance, you usually end up with a nicer vehicle than if they were to pay for it all up front. For example, if you’ve saved $6000 for a car, you can find a used one and pay in full. However, if you use that $6000 towards a down payment on a new car, your options increase tenfold. If you have good credit, you can probably even buy a brand new model!

The one drawback to financing is having to make monthly payments. For some, having another payment in addition to the ones they already make (like a mortgage payment, rent, etc.) is a major deterrent. Included in these payments is interest, which is a fee you pay the lender for allowing you to borrow the money in the first place.

Now you understand the difference between both methods of payment. So what’s the best option for YOU?

Door #1: Buying Your Car with Cash

Most people think buying a car with cash is better than financing, simply because you don’t have to pay interest. With a cash deal, you only pay the advertised price, with no additional charges. Generally, if the interest rate you earn on your savings is lower than the after-tax cost of borrowing, paying cash is the way to go.

However, you don’t have as many options when you pay with cash. Most people buy used because a newer model is simply too expensive to buy upfront. Most of us don’t have $20,000 just sitting in the bank.

Door #2: Financing Your Vehicle

There are some obvious advantages to financing. If you have good credit and qualify for a low-interest rate, financing may be the way to go. You’ll only be losing a small amount of money, plus you’ll be able to keep your cash in the bank, which can be used to make payments on other debts, investments, or different projects.

Another great option, and possibly the best of both worlds, is using a portion of your cash in combination with financing. The more money you put down right off the bat, the less you have to finance. This means you’ll end up paying less in interest, plus you’ll be able to keep more money in your bank account!

If you can get a relatively low-interest rate (sometimes dealers can offer 0% interest if you finance with them), then it’s a great choice. It’s essentially free money.

Another reason why financing is the better option is that you can save your cash in case of an emergency. Sometimes we have unexpected expenses that need to be dealt with. Spending all your savings on a new vehicle can leave you in a very unsafe position.

What’s The Best Option for You?

That’s a decision you’ll have to make. The right answer will come after evaluating a couple of things:

  • Your credit rating
  • What kind of interest rate you can get
  • How much money you have saved
  • What type of vehicle you’re looking to buy
  • How good you are with your finances
  • How much debt you have

The answers to these questions will help you determine what the best choice is for you. If you have a favorable credit rating and can get a reasonable interest rate, financing is sometimes the more viable option. It leaves more money in your bank account for different expenses or emergency situations. As well, if you’re good with your finances and have relatively no debt, financing can offer up more options in terms of what type of vehicle you can buy.

If you’re already in a bit of debt and are looking at buying an older, used vehicle anyways, paying cash might be the best option for you. Or, you could just combine both options and put a large portion of your savings down and then finance the rest.

In the end, the decision is yours. In most cases, it’s best to determine what type of car loan you would qualify for, before writing a big cheque and paying outright. Who knows, you might be able to score a great interest rate.


Go Auto Finance has both the tools and credit specialists to help you make the right decision, in case you’re still unsure of what to do. We’re able to provide affordable interest rates for people with all-types of credit. As well, we work with other world-class financial institutions to give our customers access to the best car financing rates and widest variety of options. We also have an easy-to-use credit application online!