Every year millions of cars are sold in Ireland. People with a tight budget prefer used cars. Used cars, available at half the market price of new cars, do not depreciate as rapidly as new cars. Cash is often preferred to make a large purchase as it does not leave you under a debt obligation. But sometimes it is not feasible to have enough cash to pay outright. Financing comes in handy then.

Not always will you be lucky to make clear choices between both options. Sometimes you may use cash to pay for your car outright and yet you would want to finance it. Everyone’s financial situation is unique. You should carefully understand the implications of your decisions in the long run. Not taking out a loan to buy your car is not always cheaper in the long run.

Cash payment for your used car

Paying cash for your car is extremely easy. You make the payment once and for all and the car is yours. There will be no restrictions regarding modification, selling of it and mileage. You will get the following benefits from buying a used car through cash:

·        You do not have to bear debt

Paying cash for your car means you do not have to worry about debt payments. Even if you lose your job or you experience unexpected financial difficulties, you do not have to worry about debt payments.

·        You will own your car outright

From the moment you clinch a deal, you will get the ownership of your car. You are completely free to drive your car the way you want. You do not have to worry about the mileage and modification. You can sell your car as and when you want.

·        You can save money

Cash payment will help save you a lot of money as you do not have to pay interest on top of the market value of your car. Consider the following table to understand how much extra money you will pay if you have your car financed:

Car’s value	€15,000
APR	6.1% (fixed)
Repayment term	2 years
Monthly payments	€664.38
Total amount payable	€15,945.12

By buying your used car through cash will help you save €945.12 as interest. The interest rates are determined based on your credit rating and financial repayment capacity. The actual interest rates can go beyond 20%. Choosing a longer repayment term also decides how much you will end up paying as interest. Look at the illustration below:

Car’s value	€15,000
APR	6.1% (fixed)
Repayment term	4 years
Monthly payments	€351.84
Total amount payable	€16,888.32

By increasing the repayment term your monthly payments reduced but the overall payment became higher.

Extra fees will also add a burden to your pocket. Your lender will charge origination fees of about 1 to 2% of your loan amount.

·        You can avoid overspending

While getting your car financed from your dealer, you might be talked into add-ons. You can avoid all of that at the time of buying outright for cash.

A used car purchase for cash has a few drawbacks as well.

·        You will have less cash on hand

Paying for your car outright is a significant purchase. Your savings will sharply plummet and you will be vulnerable when emergencies crop up.

You might not have enough money stashed away to meet the unexpected expenses which will result in taking out no credit check loans in Ireland. These small loans can help tide you over, but they will charge very high interest rates.

·        A credit-building opportunity will not be an option

A car loan gives you a chance to build your credit score by making all payments on time. For bad credit people, car financing can be a good alternative. However, you should do proper research about interest rates to get the most affordable deal.

·        You will face an opportunity cost

Using your savings to buy your car outright will make it difficult for you to pay off other high-interest debts and credit card bills. You may even miss out on a golden opportunity to invest that money.

Financing your car

You can have financed your car from either direct lenders or car dealers. Hire purchase (HP) and personal contract purchase (PCP) are financing deals that car dealers offer. Interest rates will be lower for people with good credit borrowers.

Car finance without a credit check is also available for borrowers who want to meet a shortfall of cash. Hard inquiries will not be made, but lenders will run soft inquiries. They do not show up on your credit rating.

Car finance has some benefits to offer you.

·        You can spread the cost

 Your car debt can spread the cost over a period of months. You can easily budget around your payments. Because you will be making fixed payments every month, it is much easier to manage.

·        You can build your credit score

 Timely payments will have a good impact on your credit score. A car loan is an instalment loan, so a mix of credit will also contribute to your credit score building.

Car financing is subject to a few drawbacks as well.

·        You will have to pay interest charges

Car financing can prove to be expensive especially if you are seeking it from a car dealer. They will charge high interest rates in case of a poor credit score. You will also have to follow the clauses about the mileage and usage of your car. Penalties will be imposed when you do not adhere to the clauses.

·        You cannot sell your car

You get the title as immediately as you buy your car with cash, but ownership is retained by your lender or car dealer. It will be transferred to you after the final settlement of your account.

·        You are at risk of losing your car

Your car will be served as collateral. You are completely free to use your car the way you want. But your car will be repossessed in the event of a default.

Is it better to pay cash or finance a used car?

It depends on your financial conditions and goals which option suits you fine.

Paying cash	Financing	Middle ground
Buying a car upfront is the best bet when you want to save money on interest payments and you do not undergo any financial problems due to a cash shortage later.	Financing is a suitable option if the outright purchase will swipe away your savings and you intend to use those savings for the down payment of your mortgage.	You should put down a larger down payment to reduce the size of loan-to-value. You can pay down the loan more quickly and save money on interest payments.

 

You should talk to your financial advisor if you are unable to choose between both options. They will evaluate your financial condition and credit score health to figure out which option suits you best.