I’ve long advocated paying cash for cars. This idea is completely foreign to many, but the advantages are compelling.
You’ll buy a more reasonably-priced car
It’s harder to hand over cash you’ve saved than it is to agree to future payments. Car salespeople are experts at spinning the numbers to steer you into a lease with payments that seem low. But you’re still giving away a huge pile of money when you total up the payments and future penalties. It’s much easier to understand what you’re really paying when save up for a car. And you’re much more likely to make a reasonable choice of car instead of burying yourself in debt.
Get a better deal
Buying a car is stressful and the salespeople have information advantages over you. When you’re paying cash, there are fewer ways to trick you. Car loans can seem cheap, but the reality of paying for many years may not be in the front of your mind. Things get worse with leases if the contract has clauses that will very likely have you paying penalties when you return the car.
0% financing doesn’t exist
We love to get things for free. But when a dealership offers either 0% financing or cash back, that’s an admission that the financing is not 0%. If there is no cash back alternative to the 0% financing, the car’s advertised price is still inflated. The truth is that the financing rate will be higher than your mortgage rate, but that won’t be obvious at all as your head swims in numbers.
Get off the debt treadmill
If you save up to buy a car you avoid debt. Once you’ve bought the car you can start saving a little each month towards your next car. Instead of being on a negative debt treadmill, possibly owing more than your car is worth, you get into a positive pattern. It feels good not to have car payment obligations.