Which is better : Buying Cash or Financing?

Consumers always ask, which is better, to purchase a vehicle cash or to finance? While every situation is unique and varies, the consensus by financial Gurus such as Dave Ramsey is to purchase cash. While I am no financial genius, I am against purchasing a vehicle cash in most situations.There are a few occasions where I feel a cash purchase is the best option, but there are many factors to consider.

First, you have to decide how much vehicle you're trying to buy and what purpose will it serve. I once bought a Saturn Vue cash for ,y daughter's first car. I think we paid $3500. The Vue had over 100,000 miles and over 10 years old. It wasn't meant to be a car to last a lifetime or be driven to the ground. It was just her first car to last her a few years. In this day and age, $5,000 doesn't buy a whole lot of car. So you have to tread lightly on a purchase in which the vehicle may not be in the best condition. So, decide how much do I want to spend? What do I want to get out of my purchase?

Now, for larger purchases in the $20,000, $30,000 or $40,000 range why buy cash? Financial experts say you don't want to pay interest over time and that will save you thousands. True. But how much money will you lose by pulling such a large amount from your account? Most individuals who have that much money available in the bank or through investments have two things in common, excellent credit and financial independence to a point. Meaning this, if you have a large amount of money in the bank earning interest making you money for nothing, why would you stop it from doing so? $20,000 earning 10% compound interest will earn you approximately $10,000 over 60 months. If you finance $20,000 over 60 months at a modest 3.9% you will pay approximately $4,400 in interest charges. That means keeping your money in the bank will actually make you about $5,500! This is one factor to consider in deciding whether to finance or pay cash.

Another factor, for me, is even more important. Why invest in a depreciating asset? The two brands with the best resale value in America are Subaru and Toyota. And both of those brands will be worth between 52 and 65% after three years. All vehicles, new and pre-owned, lose value immediately. So why put either all or a lot of your cash into something that will be worth less in the immediate future? It's like telling someone here's $200 pay me back $100 when you can. It goes contradictory to common sense.

Lastly, the train of thought in buying cash is that you avoid payments and you own your assets. In case of income loss you don't have to worry about losing anything. That is excellent thinking. Except that I revert back to the common factors of people who consider buying cash: excellent credit and financial independence. People who have 20, 30, 40 or more thousands in the bank do not come by that in by accident. They are financially bright individuals. So that if they have $20,000 in the bank today, they will not spend or lose that money just because they didn't make a cash purchase. They will keep that money in the bank and the option to payoff any loan is always there because the financial means is always there. If they lose their job, they have money in the bank to payoff any loans and still manage.

To finance or purchase cash is ultimately a personal decision. You have to weigh all your personal factors and choose to your needs. Would I buy a home cash? Absolutely. Over time property values can only go up. Would I purchase a fairly new vehicle cash? No. For my personal preference, it is not a financially sound decision.