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Car Loan vs. Cash Purchase

If you’re shopping for a new car, you may be wondering if it makes sense to pay cash. But even if you have the money at hand to buy a car outright, there are still advantages to taking out a loan. In fact, for most Americans, it’s almost never better to pay cash for a new car.

Build your credit historycash and calculator

Having no credit history is a major disadvantage any time you seek approval for a loan or to rent an apartment or home. If you plan on buying a home with a mortgage or financing a car in the future, having an established credit history and a good credit score can help you get approved as well as qualify you for better interest rates.

According to, 15% of your credit score is determined by the length of your credit history. Additionally, the most important factor is payment history, which accounts for 35% of your credit score. This means that simply having credit and making payments on time can be responsible for half of your credit rating. Financing a car and paying it off helps demonstrate your credit worthiness to future lenders. By paying for a new car with cash, you miss out on a major opportunity to improve your credit score.

Save your savings

It’s always a good idea to have enough savings to get you through a rough patch. There’s no one-size-fits-all answer for how much money you should keep in the bank. The standard recommendation most financial experts adviset is to have enough to cover three to six months’ worth of basic expenses. If buying a new car with cash would deplete your savings to the extent that you couldn’t cover at least three months of basic expenses, it makes more sense to finance. Especially in an uncertain economy, you can never feel too good about having a healthy savings. And even if you feel comfortable letting go of the capital, investing it in stocks, mutual funds, or a retirement account can result in much bigger savings compared to trying to avoid paying for the interest on a loan.

Don’t limit your options

New cars are expensive, and buying one with cash can severely limit your options. If your liquidity isn’t sufficient to purchase the car, SUV, or truck that fits your needs, financing a loan can give you access to a more comprehensive selection of vehicles. But it isn’t just your vehicle options that are more limited when buying with cash. Dealers might offer significant rebates if you finance your new car through a financial institution tied to the dealership. Skipping this offer could be a missed opportunity.  Learn more here about Kleberg Bank Partner Dealers.

The biggest perk of buying a car with cash is avoiding the interest payments, but with many terms and payments available, it makes more sense to finance in most situations. Visit Kleberg Bank's website to LEARN MORE  or contact Frank Benvenuto by phone at (361) 834-2246 to discuss your lending needs and get pre-approved on a loan before you set out to purchase your dream car!