Why Finance When you Can Pay in Cash? A Car Payment Guide for Internationals

Buying a car is an important step, and one that requires much consideration. There are many aspects you’ll want to consider before purchasing a new or used vehicle, but a major piece of the car buying puzzle is deciding whether to pay cash upfront, or to finance your new ride.

So, how do you choose?

Well, there’s no one right answer for everyone. But if you are a foreign national in the United States and need a car, there are a few factors that you should consider before making a decision. Learn more about your options in this Car Payment Guide for Internationals article.

What’s the difference between paying cash and financing?

You have two options when you purchase a car through a dealer.

Option 1: Pay cash, and leave the dealership with full ownership of your car. You have paid the price tag (or negotiated) amount in full. This means if you had $30,000 in your bank account and purchased a $25,000 vehicle, you now have $5,000 left in the bank, and a new car in your parking spot.

Option 2: Finance. When you finance your new or used vehicle, you only pay cash for the down payment, a percentage of the total cost of the car. The remainder of the cost is broken down into monthly payments, with added interest. You have an auto loan.

Now, you may be thinking that by choosing to finance your car your total cost goes up due to the added interest of the course of your loan. If you have the money in the bank to cover the price tag, what’s the point of adding interest into the mix? Shouldn’t you try to save as much money as possible, to get the best deal?

Not always.

There are certainly benefits to paying cash outright, however forward thinking international students or professionals can use a car loan as a wise investment if they plan to stay in the USA for a long term. So why might you consider inflating the price tag instead of paying cash up front?

You build credit.

Credit is important to maintain your lifestyle in the US, and your credit score is used by different entities to determine how trustworthy you are with your finances. Any loan in the US will likely not be granted without having a credit score. And if you are new to the United States, you probably don’t have credit at all.

Having loan payments gives you revolving debt, or recurring payments, which is beneficial in the long run if you pay your bills on time. The price tag might be a bit higher now, but you will open many doors in your future in the US just because you took the steps to building your credit now.

Landlords require credit checks before allowing you to move in. If you don’t have credit, you might be refused, or be required to go through numerous extra steps to prove that you are trustworthy. You also need a good credit score to secure a mortgage, a loan that helps pay for a house when you want to become a homeowner. Some employers even check credit scores before hiring to determine if you are responsible, and decide if they can trust you with corporate decisions.

You might have $25,000 available in the bank right now for a car, but will you have $350,000 when you want to purchase a condo?

Building credit is just one of many benefits to financing your car. But there’s a few more questions you should ask yourself before making a decision.

What should you consider before choosing an auto loan?  

1. Know your terms. You should have a clear understanding of how much you will owe each month, the amount of interest that you will be paying, and how long it will take to pay off by the terms that have been set. *Tip: Read the fine print! Some loans may penalize you for paying your loan off before the end of your terms. If you have any questions, always ask before signing.
2. The value of the car. As soon as you drive a new car out of the lot, it depreciates, or becomes less valuable, almost immediately. You’ll want to consider how much your car will be worth over the course of a few years in order to determine how much debt you want to incur in the process. Generally, if you take out a car loan with a low down payment and high interest rate, you will end up owing more than the car is worth if you want to trade it out in the next few years. You should make as large of a down payment as possible, even if you have more favorable options. While the national average is less, a general rule of thumb is to make a down payment of at least 20%. If you are saving up for your first car, this can be your goal before hitting the sales lots.
3. Are you responsible? A car loan benefits you and your credit score only if you make your payments on time every month. If you are someone who has trouble paying your bills on time, think long and hard about this, as bad credit can be worse than no credit.
   

What should you consider before paying cash in full for your new vehicle?

1. Will you have cash leftover? Think about any emergencies that may come up, and how you would pay for them. If you have enough cash to pay for your car upfront, but will be left with next to nothing but a car in the end, you may want to reconsider your payment method. *Tip: If you’re unsure of how much money you should have saved up, think about what your expenses would be for half of a year. If you fell sick, or lost your job unexpectedly, could you afford all of your bills for six months? Knowing your safety net number can help you decide whether or not it would be responsible for you to pay for a car outright.
2. Do you have hopes for a long future in the USA? Life in the states largely revolves around credit. From education loans to homeownership, credit is necessary to reach most major milestones here in the states, and the sooner you begin to establish credit, the better. However, if you’re a short timer here and the end is in sight, building credit may not be a priority for you. In this case, paying cash in full is a good option for you.
3. Only you can decide the best way to purchase a car for yourself, as our finances and future plans are as unique as our thumbprints. But with a bit of reflection on your situation, and the benefits of financing and paying cash, you can equip yourself to make the best decision for you.

Applying for a loan with us is quick and easy, and we’re here to help you. Why not apply today? 

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