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Is It Better to Pay Cash or Finance a Car in Canada? Pros & Cons

Is It Better to Pay Cash or Finance a Car in Canada? Pros & Cons

 

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 Using a Car Loan

 

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

 

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

 

Distribution of car loan term lengths

Distribution of car loan term lengths

 

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 out your 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.

 

late car payment affect on credit score

 

Cons of Buying a Car With a 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.

 

Canada Inflation and Interest Rates

 

Monthly payment – 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 Buying 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.

 

You can do what you like with the car – Once you own the car, you can modify it, change the colour, add a bodykit, or change anything you like.

 

No monthly payments – With no car loan, there’s no monthly loan payment.

 

Cons of using cash to buy your next car

 

Cons of using cash to buy your next car include:

 

Uses up your savings – Depending on how much you have saved, buying a car with cash could use up a significant portion of your nest egg.

 

Potentially more 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 boost for your credit score – 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!

 

We will use all our skill and experience to deliver the lowest possible auto loan rates, guaranteed. Contact Car Nation Canada Direct to learn how we can help.

 

 

Categories: Auto Loan

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