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.
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?
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?
What should you consider before paying cash in full for your new vehicle?
Applying for a loan with us is quick and easy, and we’re here to help you. Why not apply today?