It just makes sense not to pay more money for something at an unfavorable interest rate when you have the cash to buy it outright, correct?
Not necessarily. Sometimes if you have cash available to you, it can benefit you more in the long-run if you finance it. Some finance companies offer great APR deals on cars, as low as 0.9% APR.
And, to further illustrate this point, it is a semi-known secret within the automobile industry that offering to pay cash for cars gets car salesmen eager to raise the price on the car they’re selling.
If you are interested, below is a devil’s advocate approach to this concept:
Now, like we were saying, if you finance a car, these car dealers are way more likely to give you a price that is actually under what you see on the windshield! It’s a win-win situation, you’re getting your car at a reduced cost while paying minimal interest, and you’re also raising your credit score for more
When to Finance It
There are times when it might make more sense to take out a loan and finance it. Here are a few of those life situations.
Maybe you’ve just had your first child, got married, or want to move out of your parents’ house. You know what I’m talking about, it is, of course, the age-old method of taking out a mortgage.
Taking out a mortgage can be a scary business. It can feel overwhelming and hard to navigate, especially when renting is becoming the new normal. If you’ve found your perfect home and hold a stable job with a steady income, there’s nothing wrong with calculating your mortgage and taking the plunge into homeownership!
Credit cards can seem rather daunting at the best of times. There’s always a risk with any credit line. However, as long as you’re responsible and spend within your means, credit cards can be a great way of buying that expensive coat you can’t quite afford with cash yet.
As long as you have a regular source of income and manage your monthly expenses, you can use your credit card to get products you’d have to wait months to save up for as soon as you’d like.
Some credit card companies even offer rewards for buying certain things. If you’re a frequent traveler, you can buy your airline tickets and usually receive up to double or even triple the number of frequent flyer miles instead of buying with a debit card.
Why Use Cash
I know this question seems obvious, but it is always important to stress just how safe paying with cash is. When you pay with cash, you’re not taking on any debt, you’re exchanging money for a service or product, and it’s as simple as that. There’s also the factor of interest rates and general convenience, which I’ll go into further detail below.
Debt, Debt, Debt
Everybody dreams of the day they no longer owe money to another person or organization. The best way to work towards this is, believe it or not, is to avoid taking on excess debt!
Suppose you want that new game console or expensive shirt. In that case, it can often be beneficial to wait and save up until you can pay with cash, especially as rising interest rates can frequently accumulate and catch you off-guard.
Life can also throw all kinds of curveballs at you, your car can break down, or a family emergency can happen. In these cases, you may be forced to take on even more debt if you’re not careful managing your money.
“Cash Is King”
This is a timeless phrase that is still relevant even in this digital age. Cash is “real” it’s not some imaginary money stored on a server somewhere that you pay towards every month. Cash is yours to spend as and when you want to or need to. It also acts as a measure of self-control. You can never spend more cash than you have available.
In conclusion, financing is an excellent option if you want to make a big purchase like a new car or a home. Financing options can also be a great way to purchase products early if you can’t pay for them with cash when you want them.
On the other hand, there is always the risk of debt with financing. Interest rates can get out of control or life throws up a challenge. This can end you up in uncontrollable debt. If you stick with cash, you can never spend more than you have on hand. Overall, Cash versus Financing is a balancing act that you need to master for maximum efficiency.