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Why Buy a Car with Cash?

By: Green Panda | Date posted: September 01, 2010 (5:00 am) | Write a Comment (4 Comments)

If you’re new college graduate, getting your finances squared away is a priority. I want to share a tip on how you can reach your financial goals quickly. I’m suggesting that you avoid having a car payment as long as you can.

It’s not feasible for some situations, but it can make a huge difference with one adjustment.

Advantages of No Car Payments

No car payments has freed up our monthly budget a bit and we’ve redirected the funds to other financial goals. We have fortunately had a decent track record with car repairs. Even when we had to replace the clutch and had electrical work done for my husband’s old car, the monthly average of owning the car was about $150/month, much less than the average of car payment of $479 /month.

The extra money can be reallocated to other goals:

  • paying off credit card debt
  • building an emergency fund
  • investing more in your 401(k) and/or IRA
  • saving for a vacation
  • house down payment

You can also use the money to bump up your lifestyle. You’ll have a bit more to eat out for example or go on some more mini-vacations. The flexibility of having that money available is a huge advantage.

“I Don’t Want a Clunker!”

I completely understand that people don’t want to buy cash for a car because they worry about getting a beater or worse, a lemon. It is possible to find a solid used car for you. It pays to do your homework when you’re hunting for your car.

  • Create a list of your must-haves and wants for the car
  • Decide on your budget for the car
  • Use Consumer Reports and similar sites to find a list of vehicles that are on your list
  • Check Kelley Blue Book to get an idea of the cars you can afford

When you buy from a private seller, you should be careful to ask questions about their history with the car and have them provide paperwork. Anyone can say they’ve maintained the car, but having the documentation shows that they have actually done it.

Check with CarFax for the vehicle’s VIN for when you find a car that you like. Take the car to your regular mechanic to have it thoroughly checked.

Save for the Next Car

While you’re saving on car payments, don’t forget to transfer some of it into savings for your next vehicle. Depending on how long your current vehicle lasts, you may have a sizeable car fund in place. If you’re interested in seeing how you can upgrade your cars with cash, Dave Ramsey has a video explaining how it works in detail.

Your Thoughts

Buying a car with cash isn’t an option for some, but I think it’s something to seriously consider as you start off in your career. I’d like to hear your thoughts on it. Did you pay cash for your car? What are the pros and cons of it?

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4 Comments
  1. Comment by Money Obedience — September 1, 2010 @ 1:33 pm

    If you are buying a car for cash, you don’t need to carry as much insurance like comprehensive and collision. Not making these extra insurance premiums alone saves a bundle each month, too.

  2. Comment by Gholmes — September 10, 2010 @ 2:13 pm

    Yes paid cash for our car and we upgraded though better than a clunker not as nice as I hope. Plan on getting there eventually. A benefit if I do have buyer remorse I know that I could turn around and sell it for the same as I paid.

  3. Comment by Andrew — September 10, 2010 @ 5:20 pm

    I think it’s a great idea to set aside a car fund no matter what condition your current car is in. It just helps you become prepared for unforseen circumstances and not feel like you’re cutting into your savings when you do get another car (new or used). It also gets you into a good pattern if you take out a loan on a car in that you’ve basically been paying a “loan” off to yourself while you’ve been saving up…so it’s not part of your routine.

  4. Comment by Neil — September 12, 2010 @ 10:10 pm

    It’s always better to use cash…. at least that’s what I think.

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