Finance vs buying outright

Buying a new car is one of the more expensive purchases that many of us are required to make during our lives. However, depending on your financial situation, you might be considering whether to take out car finance or buy your new car outright with cash. 

To help you in your decision, here are some of the advantages and disadvantages of car finance and buying outright. 

Advantages of car finance 

Car finance can improve your credit score

As long as you pay back the car finance on time and as agreed, car finance can help you to build a positive credit history, giving you a better credit score over time. 

You might therefore look to lenders that specifically cater to those seeking car finance with a bad credit score, so that you can then make payments on time, eventually positively affecting your credit score in the future. 

Potentially get a better car 

Taking out car finance may enable you to get a better make and model of car than your budget would normally allow. Any cash that you have saved can be put towards putting down a deposit or purchasing insurance, rather than paying for the total cost of the car. 

Spread the cost out over years

This is because financing a car spreads the cost over an agreed term, which could span anything from several months to a few years, making it more affordable. 

Fixed monthly payments

Over the loan term, you will only be expected to pay monthly payments, which will be agreed when the loan terms are drawn up. 

Disadvantages of car finance 

Interest payments 

Although you might be able to spread the cost of the car over several months, in the long run the cost of the car will be more expensive than if you had bought it outright. This is because you will have to pay a rate of interest for every year that you have your loan

Terms of agreement 

Another disadvantage to car finance is that you don’t get to own the car while still paying off the loan. This means that you must carefully adhere to all of the terms and conditions set out in your finance agreement. If you break any of these terms, or damage the car in any way, you will be liable to pay an additional fee. 

Advantages of buying outright 

One payment 

If you have the right amount of cash to hand, buying a car outright can be a much more simple and straightforward process. You just hand over the cash in one payment, and the car belongs to you immediately. As the transaction is just one simple payment, this means you won’t have to budget every month for monthly repayments. 

Cheapest option 

Buying the vehicle outright is also the cheapest way to buy a car, as it means you won’t have to pay the additional rate of interest on your monthly repayments. Instead, you will only pay for the cost of the car itself and any dealership fees, and nothing else. 

No complicated or tricky terms to adhere to 

As the car belongs to you only, this means that you don’t have to worry about any additional fees or make sure you are following confusing terms and conditions. You won’t get caught out by complicated requirements or mileage limits – the car is yours to use the way that you wish. 

Option to sell the car whenever needed 

If you ever find yourself short of cash, or want to buy a newer model, then you also have the option to sell the car whenever you want or need, unlike if you have taken out car finance. 

Disadvantages of buying outright 

The car will depreciate over time 

One disadvantage of the car belonging solely to you is that you will have to foot the depreciation costs of the car. Every vehicle depreciates in cost over the time that it is used, which will be reflected in any resale price. 

You might use all your savings 

If you buy the car outright without considering the implications properly, you may end up using all your savings that could have otherwise been used as a safety net for any emergencies in the future. 

Car choice limited to amount of capital available 

Ultimately, the biggest disadvantage of buying a car outright is that you are limited by the amount of capital you have available, and thus the realistic budget you have to spend. This means you might not be able to afford the make and model of the car that you want. 

Final thoughts 

Overall, there are many advantages and disadvantages to both car financing and buying outright. What your decision will ultimately come down to is personal preference, and what best suits your requirements at this point in your life. Remember that if you do eventually decide in favour of car finance, the application process here at CarFinanceGenie is a free, quick and simple one, with no obligation.