When considering the purchase of a new car, the same question always assails us: what is better: pay in cash or finance the vehicle? It is evident that this question only has reason to be in the event that we have in our account the money that the car that interests us costs, since, otherwise, it is evident that we are going to have to finance it. But let’s imagine that yes, that we can afford the car payment, but we are not sure what formula will be the best for it. We are going to see the pros and cons of buying a car in cash or financed.
Most studies, including those prepared by the consumer association (OCU), conclude that a financed car is always more expensive than paying for the same vehicle in cash, which is evident since, in the case of financing the car, we will pay more in interest. If you have enough savings to meet the expense without this implying problems in your possible emergency fund or in what you are saving for retirement, for example, it is better to buy in cash, but if buying the car will mean that you run out of savings and, therefore, without the possibility of facing other unexpected payments in the immediate future, financing may be the most appropriate option.
Keep in mind that the brands usually apply a discount on the sale price of the vehicle in the event that it is financed with the finance company of the brand itself. This formula has some benefits for the user. The most important is that the dealer takes care of all the paperwork and the second is that, starting from a lower base price due to the fact of financing the vehicle, once expenses, commissions and interest have been applied, the price, always higher to which we would pay in cash, may not be so far from the latter, so that we may be interested in resorting to this formula so as not to decapitalize ourselves.
The financial products that the brands offer us to pay for our car usually always include an opening commission of around 3% that is distributed among the installments and they also have a commission for early cancellation that is usually the maximum provided by law. Most also add some type of insurance that guarantees the collection of the full amount of the loan and it is even possible that the duration of the loan is linked to some type of maintenance contract that obliges the user to carry out maintenance on the car at the dealership.
It is also important to know if there is a permanence clause that goes beyond early cancellation. Through this clause, the brand could even eliminate the initial discount in the event that the loan is paid off early. It must be borne in mind that according to the consumer credit contract law, the maximum commission for early repayment cannot be greater than 1% of the amortized capital if there is more than one year left for the loan to end, nor more than 0.5% in the event that it is amortized during the last year of the loan.
A good idea is to request a quote for both options, cash sale and financed, at the dealership and do it later at others of the same brand to use the different quotes when negotiating the final price or financing conditions. It is also important to ask the interest that will be applied to the financing and compare it with what a bank can offer us. As the market currently is, a financial entity external to the brand will always offer us a lower interest, but we will have to pay the amount of the car as if we were buying it in cash, without the discount that dealers apply when financing with them. It is important to do numbers to know, in this case, which is the best option.
Keep in mind that banks usually offer longer repayment terms, between 7 and 9 years, and interest rates that are now around 6% against double-digit figures (from 10%) in financial transactions. branded. Many banks also do not charge any opening commission, although some require the hiring of insurance to guarantee the loan. Most financial institutions offer better conditions if the car we buy is an ecological car.
The interests outlined are applied through what is called the TIN -Nominal Interest Rate- but there is a second important piece of information in this type of transaction that is the so-called APR -Annual Equivalent Rate- which, in addition to the TIN, includes the possible commissions and costs of linked products such as insurance. This interest rate, the APR, is the one that will allow us to compare more easily between the dealer’s offer or that of any bank.
In the case of a second-hand car, especially if we buy it from an individual or a sales company that does not have its own financing program, the best option is usually to finance the car through a personal loan from our bank. or any other financial entity. If we ask our usual bank, it is likely that the conditions will be more favorable and we will have to present less paperwork since the entity already knows our level of income and our solvency if, for example, we have contracted a mortgage or any other type of loan.
In all cases, however, it is interesting to look for offers and compare the conditions offered by the different entities and, above all, read the small print to check if there are additional concepts included in the loan, such as, for example, opening commissions or early cancellation or additional services such as taking out insurance. Once the term of the operation has been set and the monthly fee is known, we will be able to know exactly the amount that we will end up paying for our vehicle and we will decide whether or not to compensate us for the existing differential with the cash price.
