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Advice

First published: 20th April 2015

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Advice

Paying for a car with cash or savings

The pros and cons of buying a new car using your own cash

First published: 20th April 2015
If you have the money, then paying for a car upfront can be the simplest way. Low interest rates on savings could make this attractive.
Pros:
  • With low interest rates on savings, you may not be earning much from having money sitting in a bank and so paying with cash – incurring no interest charges – can be the cheapest option
  • You don’t have to worry about meeting monthly payments
  • You own the car outright from the start
Cons:
  • You don’t get some of the consumer protection you have when you take out certain kinds of finance
  • You need to make sure you still have enough savings to cover emergencies
How does it work?
Unless you find a zero-percent finance deal, borrowing money to buy a car means you’ll have to pay interest charges on the amount you borrow. So if you have plenty of savings, it can be tempting to pay for a car outright – particularly if you’re not earning much interest on your nest egg.

The Money Advice Service recommends that you keep enough savings to cover emergencies – typically three times your monthly outgoings. So, if you’re tempted to use raid your piggy bank to pay for a car, make sure you have enough to left in your emergency fund.

Paying for a car on finance gives you some extra rights under the Consumer Credit Act, but if you pay upfront with cash, you won’t get these.

Even if you do have the cash readily available, you probably won’t be able to take a bundle of notes into a dealer. Because of forgeries and money-laundering rules, the dealer will probably insist you pay by electronic bank transfer or by debit/credit card.
Top Tip
  • Even if you have the money to buy a car outright. do your sums carefully – you may be better off using your savings as a large deposit and then taking out a loan or other finance to pay the rest.
Related topics: New car finance