Buying a Car with Cash or Taking a Loan

We know that a car loses its value very quickly, which is really a liability in our small domestic accounting, but sooner or later you would want to buy one for family, professional or just for pleasure reasons.

The idea is that if you have to sell the car quickly, with the amount you'll get back you can pay the credit you asked for completely.

Case 1: Car price: 10,000 $ buy by borrowing 100% of the amount

Photo: http://www.freedigitalphotos.net

(I just thought of 10,000 because it's a simple number to deal with)

Suppose that you get a car loan at 5% interest rate over 5 years:

Monthly payment => 188 $

Total cost of credit => 11322 $

After one year the capital needed to pay your credit is => 9066 $

In this case there is a very small chance that you can resell the car for 9066 $

Case 2: Car price: 10,000 $ you ask for a loan of 6700 $, with a contribution of $ 3300 (about 30% of the whole price)

Suppose that it is a car loan to the 4% interest rate to pay in four years:

Monthly payment => 151 $

Total cost of credit=> 7261 $

After one year the capital needed to pay your car loan is => 5449 $

Now there! After a year, you can get the money back to pay it all and the opportunity to buy a new car if you wish to.

Purchase Plan

Having a purchase plan helps you to:

1. Force yourself to save at least a part of the whole price to buy the car and think about the project taking in consideration your income and your other personal projects. It would be ridiculous to buy a car for 20,000 $ and take a credit of 400 $ for 20 years to repay.  
2. When you save your money you are lending to the bank that will return to you an interest of at least 2% or 3%. However, when the bank lends you money you are paying a 5%,6%,7%... interest. So the less you ask to the bank, the more money you'll have in your pocket.

Case 3: Buy the car 100% cash

This means you had 10000 $ saved, well done! But what if you have empty off almost all of your savings, because let's say you've saved 12 0 15 000 $, and if you spend all this money at once, this will leave you unprotected against an important unexpected need, and you would have to sell the car again very quickly.

To be hurry to sell something is not good, because you would be selling for need and you could lose money.

So, I would keep my savings and buy the car with a 30% contribution asking for a credit for the rest.

And if you sell the car, try to sell it to a particular to avoid the salesman commission.

What do you think?