How to Pay for a Car in Canada

Buying a Car With Cash

Buying a car is one of the biggest investments you'll make in your life other than a house. Because of this, it's critical that you put a great deal of thought into how you intend to pay for the car. The two most common ways people buy cars from dealerships are financing and leasing. But what about the third way to buy a car; paying cash in full. If you can afford to pay cash upfront, you'll be able to relax knowing you won't pay a penny in interest. Just because you have enough cash to be able to afford to pay the full sticker price of a vehicle upfront, doesn't necessarily mean that you should. In this article, we'll talk about things you need to consider before paying cash for a car the pros and cons of paying cash for a car.

Things to Consider Before Paying Cash for a Car

If you're on the fence between financing a car and paying cash for a car, it's important to ask yourself these three questions:

• How is my credit?
• Will I still have savings after paying cash for a car?
• Do I want to buy a new or used car?
• Can I put this cash toward a bigger down payment and finance a nicer car?

‍How is my credit?

As we've discussed in many of our other blog articles, a car loan is one of the best ways to improve your credit score. Therefore, if you have bad credit, you may want to consider financing so you can prove to lenders that you're a responsible borrower. If you pay cash for a car it has absolutely no impact on your credit score and you'll have to find other ways to improve your credit.

Will I still have savings after paying cash for a car?

While the idea of having to pay $0 in interest on a car sounds fantastic, being in a position where you have no savings leftover after a car purchase sounds horrid. So if the only way you can afford to pay cash for a car is by wiping your savings account, you should probably reconsider. You should only pay cash for a car if you still have a few month's worth of savings in case of any unexpected expenses.

Do I want to buy a new or used car?

The last thing you need to consider is whether you want to buy a new or used car. If you're looking to buy a new car, you're going to need to have at least $17,000 to be able to afford the cheapest car on the market. In order to have some new buying options, you're probably going to want to have around $24,000. If you're ok with buying used, you should be able to get away with having anything over $7,000 to get a half-decent vehicle.

Can I put this cash toward a bigger down payment and finance a nicer car?

If you have the kind of cash where you can afford to pay in full for a car, maybe you should consider making a big down payment to finance a car. This way, you can make a smaller lump sum payment but still reduce your monthly payments to where they become very affordable.

‍The Pros and Cons of Paying Cash for a Car

Pros

• Simplifies the car buying process. Unlike car financing or leasing, paying cash makes the car buying process much more simple. There are no credit checks, monthly payments or term conditions. It's as simple as paying the dealer the sticker price of the vehicle and driving off the of the lot.
• Easy to sell in the future. If you decide in two years that you want to buy a new car, you can easily sell your current car without hassle because you own it fully. There are no worries about getting out of a contract or transferring the lease.
• Cheaper, better negotiations. Buying a car with cash means not having to pay a cent of interest, potentially saving you thousands of dollars. On top of that, paying cash will likely allow you to better negotiate with the car dealership.
• Less debt. Unlike a car loan, paying cash for a car won't add on to your debts.
  

Cons

• A financial hit. Unless you're doing incredibly well for yourself, chances are, paying cash in full for a car is going to make a big dent in your bank account. You don't want to end up in a position where an emergency comes up but you can't afford to deal with it due to your recent car purchase.
• Fewer vehicle options. Chances are if you're paying cash for a car, you're probably going to be buying a used car. If you wanted to buy new, you'd have to save around $25,000 to $35,000 in order to have multiple vehicle options.
• Won't Improve Your Credit Score. Paying in cash for a car means not improving your credit score. If you have amazing credit, this con doesn't really apply to you, but if you have bad or mediocre credit, this is a big missed opportunity.
  

Ready to Buy a Car?

‍If you're ready to buy a car, check out our rates page to see the current rates of lenders across the country. Once you've seen our rates page, check out our car loan calculator to see a rough estimate of what your monthly payments will be!

How to Pay for a Car in Canada

Source: https://www.carloanscanada.com/blog/paying-cash-for-a-car-what-you-should-know

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