If you have saved up some cash, there are a few options when it comes to purchasing a car. You can find a decent car for $5,000 that would be reliable and able to get you the places you need to go. However, there are pros and cons of buying a car with cash.
Here are the benefits of buying a car for cash. Most of these pertain to a cash purchase of $5,000 or less.
No Monthly Car Payments
If you have $2,000 to $5,000 for a vehicle purchase, you could use that money as a down payment for a new or used vehicle instead of purchasing one for cash outright. It would also factor in your credit score and monthly income, but five thousand dollars is a decent down payment at a car dealership. However, you would then be burdened with a monthly payment that could take a nice chunk out of your monthly income. If you have poor credit or are offered a high-interest rate, your payment could be as much as $900 a month! These monthly payments could be used to invest or save. You are liable for the monthly payment even if you lose your job, which could in turn cost you your wheels. Sometimes having a reliable car that you own outright is better than financing a fancier vehicle.
Lower Insurance Payments
If you own a vehicle, it has to be insured. When you finance a vehicle, it has to have higher coverage than if you own the car outright. According to U.S. News, the average cost of car insurance is $1,416 per year. The cost of insurance takes into consideration several items such as your age, the make, model, year, and mileage of the car. If the car is financed you must have full coverage on the vehicle. If you buy the car for cash you can get liability and have the price of insurance reduced, sometimes by $400-$500 per year.
Best Price for Vehicle
When you are dealing with prices around $5,000, you can often get the best possible price for the car you are looking to buy. Many times you can get lower than the Blue Book Value by being able to pay cash upfront for the car. People selling a car for these prices are wanting to make their money and get rid of the car fast. If you have some negotiating skills and experience, there are many deals in which you could save a few thousand dollars and get a $7K-8K car for your $5,000.
While the pros of buying a car with cash are great, there are also some cons to purchasing the vehicle outright. Here are some of the disadvantages of buying a car with cash.
Older Vehicle with Higher Mileage
It is not a secret that buying a car for $5,000 won’t get you the nicest car on the road. You could use that money for a down payment and get a pretty nice car with all of the nice amenities. If you have a steady income and decent credit, you can finance the vehicle and make monthly payments to have a car that will impress your peers.
Most of the time if you buy a car for cash you are purchasing it “as is”, or without any warranty. If there are problems with the car, you have to deal with them even if they end up costing thousands of dollars in repairs. Financing a new or used vehicle often comes with some sort of warranty, even if it is just a maintenance warranty. These can save you in the long run and make sure your vehicle is well maintained and the dealership is liable for any issues regarding basic maintenance.
Cash scams are rampant on marketplaces and sales sites. There are numerous scams in which people try to gain anything from a few hundred bucks up to a few thousand. Make sure you are dealing with a trustworthy seller and all of the paperwork is filed properly and legally when you are dealing with cash. Keep an eye out for any suspicious or uneasy activity. The last thing you want is someone to take your cash and still have full ownership of the car you thought you were buying.
Make a Smart Decision
Whether you buy a car with cash or finance one, the decision is up to you. Make sure you use good judgment and do what is best for your financial situation. If you can’t afford monthly payments, it is probably unwise to finance a car. However, if you have major financial liabilities your large sum of cash may be better spent repairing your current car and paying some bills. Make a smart decision when it comes to using cash to buy a car.