Should I pay cash for my next car?

Dun, dun, dunnnn! The time has finally come: you need a new car. Maybe your old ride has kicked the bucket, and you need something ASAP for your commute. Perhaps those electric car incentives have swung you on an upgrade. Or maybe you’ve won the state lotto, and it’s Ferrari-a-go-go (here’s hoping!).

Shopping around, you’re likely getting bombarded with buying options. Banks and dealerships always want you to buy your car with auto finance and loan products so they can collect the interest.

But right now with interest rates and inflation running high, you probably don’t want to pay any interest at all. Paying in cash might seem like the best option—but is it? Let’s weigh the pros and cons.

benefits to paying cash

you won’t end up with an upside-down loan

Getting upside-down on a loan is when the balance ends up being more than the value of the purchase. It’s something to watch out for with cars because in the first few years of a car's life, the resale value drops fast. If you buy a car with finance—especially if you pay it back over a long period of time—then you may well end up paying out more than the car is worth, and lose out even more if you eventually come to resell it. It’s one thing cash buyers don’t need to fret about.

no interest

When it comes to loans and finance a real bummer is that you have to pay interest. And when interest rates are high that can really sting in the long-term, easily adding thousands of dollars to your repayments. With cash, it’s bish-bash-bosh and you're done. No interest. No worries.

you’ll spend more responsibly

When you buy with cash it’s much easier to stick to budget. (There’s a reason cash stuffing has gone viral on TikTok). You know exactly what you can afford and what you’re willing to spend.

The trouble with buying on credit is that you can get caught up in the buzz. With no money upfront it’s easy to get upsold on extras (custom paint job anyone?) or even buy a more expensive car. But when those monthly payments start to bite, you’ll really feel it.

protect your credit

While we’re talking about spending responsibly…buying a car with cash is a sure-fire way to protect your credit score as you’ll avoid potential debt.

downsides to paying cash

you lose out on your savings

A car is a big purchase and unless you really did win the state lotto (in which case—go forth and spend freely!), buying a car with cash is likely to take a big dent out of your savings. That means you won’t have that cash on hand for emergencies. (And you might actually do better keeping that cash in a high-interest savings account, or other juicy investments).

financing deals can be pretty good

It’s not all bad buying a car on finance, not at all. Oftentimes dealerships will offer deals—like super-low interest, cash back bonuses, or added extras and accessories—that make buying a new car this way much more worth it.

it’s all yours—and all your responsibility

When you buy in cash you get your car, but you're on your own. That means you’ll have to fork out for any repairs and, when you want an upgrade, swallow any losses from depreciation. If you like having a brand new car that changes with the seasons, leasing might be a natural fit.

Choosing whether to fork out the cash, or sign up for financing can be tough. But whatever side of the fence you fall on, Peddle is happy to boost your funds by buying your old car and putting some money in your pocket for a new one.