Ah yes, the age-old debate on whether it’s better to pay cash or finance your next vehicle. Both options have their pros and cons, but when it comes to saving money, financing could get you a better deal if you can qualify for automaker rebates.
Finance vs. Paying Cash
The truth is, dealerships don’t typically give buyers a better deal just because they’re paying cash.
Dealers don’t necessarily have any concern about how you’re paying for the car. Cash, check, or a pre-approval – they just want to know if you have the funds. Whether you’ve already secured financing before you walk into a dealership, or you have the full amount in cash, one doesn’t hold more negotiating power than the other in most cases.
Many people believe that having cash to pay for a vehicle holds some bargaining power because there’s no question that you have the money. However, with a loan, borrowers can often get a check for a car quickly, many times on the same day. How you pay for the vehicle doesn’t have much to do with how much the dealer is willing to lower the car’s price.
Your credit score doesn’t have much to do with the vehicle’s selling price, either. Your credit score has more to do with your interest rate and what lenders you can work with.
If you have good credit, financing with an automaker’s lending arm can actually yield you a better deal – if you play the game right. With bad credit, it may be a more financially sound idea to get a loan instead of paying cash so you can build your credit score to improve your odds of qualifying for future loan opportunities.
Finance Then Pay Cash
Many buyers don’t want to finance because they don’t want to pay for interest charges. Paying cash could mean saving hundreds or even thousands of dollars in interest charges. However, you may be able to save even more cash if you have a good enough credit score to qualify for rebates when you finance with captive lenders.
Automotive captive lenders, such as Ford Motor Credit or GM Financial, often offer rebates for buyers if they choose to finance with them. You could get your loan with one of these captive lenders, use the rebate incentive to lower the selling price of the car, then cut a check for the remaining amount to end the loan prematurely.
For example: say there’s a brand-new vehicle for $30,000 on the dealership’s lot, and you already have that cash in hand. If you finance with the automaker’s lending arm, there's an incentive rebate of $5,000. Doing this you get $5,000 off the selling price, and you only get a $25,000 loan. Since you already have the money, you can take the deal and then pay off the full loan amount with the cash you intended to use to buy the car outright. This leaves you with a vehicle you own completely, and $5,000 in your pocket!
Remember that most auto loans use a simple interest formula, so the interest charges accrue daily. The longer you wait to make that lump sum payment, the more interest you accrue. If you want to pay cash for your next car to avoid all interest charges, you need to act fast.
Every rebate deal can vary, so just make sure there aren’t any prepayment penalties or stipulations stating you have to have the loan for a certain amount of time. However, prepayment penalties aren’t so commonplace anymore, but it won’t hurt to double check.
Financing with a captive lender and taking advantage of rebates can be a great way to save cash on your next vehicle. However, these rebates are usually for borrowers with good credit.
For those with poor credit, it may be a better idea to finance rather than pay cash.
An Auto Loan Can Boost Your Credit Score and Car Choices
Another big perk of financing, besides possibly qualifying for rebates, is credit repair. For some borrowers, not paying interest is worth more than the credit repair. However, you’ve got to think long-term.
Will you always have cash on hand to pay for a car? What happens if you need another vehicle and don’t have any funds? Do you deplete your savings every time you purchase a car? Do you have enough disposable income to pay for unexpected repairs if they come up?
When you pay cash for a vehicle, you’re not doing anything to improve your credit score. However, taking out an auto loan with a lender that reports the loan to the credit bureaus means that your on-time payments improve your credit history – leading to a better credit score for the future.
You don’t need to finance everything you buy, but it’s a good idea to keep your credit score in the green in case you need to borrow. Or, if you want a car that’s more than you can reasonably save, a loan is a good route. Choosing to finance can also increase your vehicle choices, since it can be hard to come with thousands of dollars every time you need another car.
If you’re looking to pay cash for your next vehicle because you have bad credit and you’ve been struggling to qualify for an auto loan, consider subprime financing at a special finance dealer.
Bad Credit Car Loans
Subprime lenders are third-party lenders that are signed up with certain dealerships. These lenders specialize in assisting borrowers with less than perfect credit.
Some bad credit borrowers feel like their only option to pay for a car is cash, since it’s difficult to qualify for an auto loan from traditional lenders. However, subprime lenders look at more than just your credit score. If you’re on the lookout for a more expensive vehicle and you need financing with poor credit, a subprime lender could be what you need. And we can help you find them!
Here at Auto Credit Express, we match bad credit borrowers to dealers that have subprime lending resources. Our nationwide network of dealerships has been built over the last 20 years, so get started right now! Fill out our free car loan request form, and we’ll get right to work.