Tips, Tricks & Trends

You May Be Better Off Financing Than Paying Cash For a New Car Right Now

While you may have heard the term “cash is king” when it comes to buying cars, that’s not quite the case during the time of the pandemic. Considering the new car market is sparse as far as inventory and the used car market is being flooded, we don’t truly know what’s in store for the future of the automotive landscape. However, one piece of advice is that you should probably finance a car as opposed to paying cash for one during these times.

Cash is not king in an uncertain economy

In a recent story published by Jalopnik, the author talks about the simple notion of not paying for a car in cash right now and financing instead. The reasoning behind this notion is simple: Due to the uncertain economic times that we’re currently facing and the truth of the matter is that we don’t know how things will turn out, so save your money for the inevitable “rainy day.” Instead of dropping most of your disposable income on a car, just because you can afford it, it might be better to put a hefty down payment and finance the rest of the amount instead.

By doing this, you can save most of the money that you were going to spend on the car and make reasonable, or low, monthly payments, all the while saving the money that you didn’t spend in case of emergencies. I’m not a financial adviser by any means, but considering I sold cars for four years, I can tell you that Jalopnik’s logic is actually pretty sound.

A man inspects a car inside a dealership
A man looks at the sticker price of a new Chevrolet | Tim Boyle/Getty Images

RELATED: The Truth About 0% Interest Financing and Deferred Payments

You could get a better deal

To add to the point brought up by the article, I have to add that financing a new car, as opposed to paying cash for it, could actually help you get a better deal. For example, I worked for Honda and Audi and both dealerships would give buyers a better deal if they financed instead because the manufacturer would give them a better discount for financing with Honda or Audi financial instead. On top of that, buyers with top-tier credit would always get a lower rate and with no pre-payment penalty, they could just pay off the remainder of the balance whenever they wanted.

Technically, it’s a win-win scenario for both the buyer and dealership because the buyer gets a low finance rate plus more of a discount while the dealer gets to sell a car and more of a commission because the buyer is financing. Of course, any finance guru will balk at the fact that there’s still interest involved and “anti-dealership” people will huff at the thought of a dealer being happy, however, it’s not their money. Do with your money as your wish, but hold onto what you can for now.

A row of Honda cars at a dealership
A row of Honda cars for sale | Matt Cardy/Getty Images

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This tactic isn’t for everyone, though

As the story in Jalopnik pointed out, this financing option isn’t necessarily for those that are in financial trouble and are looking to buy a cheap car under $10,000. In that scenario, it’s probably not a good idea to go deeper into debt. But if you have the financial means to buy a new car in cash – and you have a decent handle on your finances all around – then you might better off financing and saving some of your money for the future instead.