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Should I buy a car using cash or financing?

Pay zero interest with an upfront cash payment, or ease some of your immediate financial burden and improve your credit score with financing.

Financing a car might sound more expensive if you have cash on hand. After all, why would you pay to borrow money you already have? But there are situations when financing is less expensive. Let’s walk through whether you should buy car with cash or finance.

Is it better to buy a car with cash or financing?

Whether you should buy a car with cash or financing depends on your personal situation. If you’re planning on taking out another loan like a mortgage, buying with cash can help you avoid taking on more debt, paying more interest and weakening your debt-to-income ratio.

On the other hand, financing might actually help you save if you qualify for a dealership discount or successfully invest the money you saved for a car. Financing might also let you buy a more expensive car than you can afford with your savings. Plus, you can keep that nest egg to cover emergencies or unexpected expenses.

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When to finance a car

Instead of buying a car with cash, there are many cases where you might actually be able to save by financing your car or at least free up money for something else. Here are a few reasons why you might want to finance a car even if you can pay up front.

1. You want to invest your savings

Depending on your investment, the returns might exceed interest payments on a car loan. Car loan rates tend to be lower than rates for unsecured and non-cosigned loans. If you get a single-digit APR car loan, investing your savings in a diversified stock of fund portfolio instead of spending it all on a car could yield double-digit returns in the long run.

Investing rather than paying for a car up front might also be appealing, because vehicles lose value over time. Investment gains can help offset this depreciation and keep your net worth higher than if you had dumped your savings onto a vehicle.

Be aware that you can lose money with investments. Returns are not guaranteed.

2. You want to lower the upfront cost of buying a car

Another reason you might want to borrow is to avoid creating a car-sized hole in your bank account. Financing allows you to break up a purchase that might cost tens of thousands of dollars into repayments that barely affect your budget. This is particularly worth it if you can qualify for a low interest rate.

3. You want to build your credit

Another advantage of getting a car loan is that it can build your credit. If you’ve paid in cash and avoided loans in the past, financing a car can start building your credit history. This can be advantageous given than car loans often come with lower rates than other forms of debt like unsecured loans.

Aside from establishing a track record of making on-time payments, auto financing can also diversify the types of credit on your report, boosting your score overall.

4. You want to increase your savings

Instead of spending money on a new car, you can use put it towards a retirement fund, your child’s education or a rainy-day fund. Savings accounts earn money over time and are relatively easy to access if you need fast withdrawals. If buying a new car outright means draining your emergency fund, financing might be the way to go.

5. You can get a better deal with dealership financing

Dealerships want customers to buy a car with financing rather than cash. This is because salespeople make a commission on your loan if you borrow through their dealership.

They’ll often knock down the price of a vehicle as an incentive to get you to buy a car with financing instead of cash. They might even offer low-APR financing to borrowers with excellent credit if they need to move cars off the lot.

Compare car loan options

1 - 5 of 5
Name Product Ratings APR Range Loan Amount Loan Term Requirements Broker Compliance
CarsFast Car Loans
Customer Survey:
★★★★★
3.90% - 29.90%
$500 - $75,000
12 - 96 months
Requirements: Min. income of $2,000 /month, 3+ months employed
CarsFast will connect you with a dealership near you to help you find the right financing.
Loans Canada Car Loans
Customer Survey:
★★★★★
0% - 46.96%
$500 - $50,000
3 - 60 months
Requirements: Min. income of $1,800 /month, 3+ months employed
Loans Canada is a loan search platform. Get matched with a suitable dealer based on your credit history and borrowing requirements.
Approval Genie
Not yet rated
3.90% - 29.90%
$500 - $75,000
12 - 96 months
Requirements: Min. income of $2,000 /month, 3+ months employed, Ontario only
Get customized car loan and auto financing solutions for a used vehicle that fits your budget and lifestyle.
Dealerhop Car Loans
Not yet rated
6.99% - 29.99%
$7,000 - $50,000
12 - 96 months
Requirements: Min. income of $1,800 /month, 3+ months employed
Dealerhop matches you with a dealer partner to get you financing.
Clutch Car Loans
Customer Survey:
★★★★★
From 8.49%
$7,500 - No max.
12 - 96 months
Requirements: 3+ months employed, Max.1 bankruptcy, Ontario & Nova Scotia only
Apply for financing with online dealer Clutch, who partners with some of Canada’s largest financial institutions to get you competitive interest rates.
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When to buy a car with cash

Buying a car with cash is generally the safer choice, since there’s no danger of defaulting or going upside down on your loan. Here are a few other reasons why it might make more sense to buy a car with cash instead of financing.

1. You want to avoid paying interest and fees

One of the top reasons to buy a car with cash is that you won’t have to pay for financing. If you have bad credit, no credit or can’t find a cosigner, it might be better to pay with cash than finance at high interest rates.

With a credit score under 660—what most lenders consider to be good credit—you likely won’t get favorable enough rates and terms to make financing worthwhile. Even if you invest that money, you could lose it or worse; you could go upside down on your loan.

2. You want to qualify for other loans

Thinking of buying a house soon? Want to get a personal loan? Having an unpaid car loan on your credit report can hurt your chances of getting approved for a competitive rate.

That’s because it increases your credit utilization ratio, which is how much of your available credit you actually use. It also increases your debt-to-income (DTI) ratio, which tells lenders how much debt you have relative to your income. Having a high credit utilization ratio or DTI hurts your chances of getting approved for a loan.

3. You can get dealership deals & discounts

Dealerships like to offer discounts on financing to bring customers in. But cash buyers might also be able to qualify for other discounts like cashback deals and rebates. While some offers require financing, you might find better offers for customers who pay in cash.

4. You want to avoid the hassle of financing

Financing requires filling out an application, providing documents and reading a contract before signing. Then there are the repayments. Even if you sign up for autopay, you still have to budget for repayments and keep an eye on your balance until the loan is paid off. Overall, paying with cash is simpler.

5. You’re buying privately

Want to buy a used car? If you aren’t interested in buying from a dealership, cash makes private sales a lot easier. Private-party car loans tend to have higher rates than other used car loans. Many lenders only offer loans for cars purchased through dealerships.

Can I pay for a car with both cash and financing?

Yes. In fact, most dealerships and lenders recommend that you make at least a 20% down payment on the car. A larger down payment lowers your monthly payments and lowers the overall cost of your car loan. It might also make it easier to qualify for a more competitive rate, which can help you save over time.

Bottom line: Should I buy a car with cash or financing?

Paying for a car with cash might seem like a no-brainer if you’re trying to save money, especially if you’re planning on making a big purchase like a house in the near future. Additionally, you won’t have to pay car loan interest or fees.

Financing your car and investing your savings instead might yield more than the cost of a car loan, although you could lose money. Auto financing can also help improve your credit score and reduces the upfront cost of buying a car.

Learn more about how car financing works and compare lenders in our detailed guide.

Pros of buying a car with cash

  • Avoid taking on more debt
  • Avoid paying interest and fees for a car loan
  • Some dealerships offer special deals for buying a car with cash
  • Avoid the temptation of “buy now, pay later” and the possibility of getting stuck in a cycle of debt

Pros of financing a car

  • Spend less upfront to buy a car
  • Keep your savings for other expenses
  • Opportunity to establish or improve your credit score
  • Spread out the cost of your car over time. Doing so might make it easier to pay for modifications or upgrades.

Other points to consider

  • Is your credit score and income good enough to qualify for financing? If your credit score is low, you may still be able to get auto financing, but it’ll likely come with a high interest rate and less favourable terms.
  • Do you have enough cash to buy the kind of car you want? Consider whether you’ll have enough savings after buying a car to pay for any unexpected expenses that might arise.
  • Can you afford repayments if you get financing? The convenience of having financing now isn’t worth the hit your lifestyle and credit history will take if you default on your car loan down the road.
  • If you get a loan, what will the car be worth after you’ve paid it off? You can recover some or all of the cost of interest by selling your car after paying it off.

FAQs about buying a car with cash vs. finance

Stacie Hurst's headshot
To make sure you get accurate and helpful information, this guide has been edited by Stacie Hurst as part of our fact-checking process.
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Written by

Editor

Anna Serio was a lead editor at Finder, specializing in consumer and business financing. A trusted lending expert and former certified commercial loan officer, Anna's written and edited more than 1,000 articles on Finder to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in publications like Business Insider, CNBC and Nasdaq, and has appeared on NBC and KADN. Anna holds an MA in Middle Eastern studies from the American University of Beirut and a BA in Creative Writing from Macaulay Honors College at Hunter College, CUNY. See full bio

Anna's expertise
Anna has written 63 Finder guides across topics including:
  • Personal, business, student and car loans
  • Building credit
  • Paying off debt
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Co-written by

Associate Publisher, Investments

Jaclyn Hurst was an associate publisher at Finder. She has a Bachelor’s degree in Business from Redeemer University and a University Certificate in Management Foundations from Athabasca University. She’s as passionate about business and finance as she is about the great Canadian outdoors, organic Sumatra coffee and music. See full bio

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