Cash Payment Vs Debt Which is better?

Recently, I have had conversations with several friends about the concept of paying in cash versus asking for a loan for small and medium purchases , such as a car.

In order to demonstrate how profitable it really is to pay in cash for a car instead of asking for a loan, I will give an example so that you can clearly see the enormous advantages of paying in cash against applying for a loan. It is a low cost credit with a small monthly payment and your plan is to drive the same car for four years and then change it for another one that costs about 11,000 euros.

What options do you have to buy your car?


You have two options. First, you can wait until then and buy the car with a 2-year loan . If you receive an 8.00% credit, you will have to pay about 250 euros per month for 2 years.

On the other hand, you can start paying for the car now and put money in a savings account . If you put 200 euros each month in a savings account or a deposit that has a return of 3.00% APR you will have approximately 10,000 euros after 2 years. With that money you can buy your car in cash without asking for a loan.

Then, you plan to spend an average of 10,000 euros in a car every four years.


With the second way, you literally save 50 euros each month, by paying in cash instead of requesting a loan. That is a total of 2,400 euros saved during the 2 years.

But what would happen if instead of putting 200 euros, you would invest the same amount that you would have to pay if you asked for a loan? That is, 250 euros per month for 2 years. After 2 years, you would have about 13,000 euros in your account. An extra 3,000 euros more! You could use this extra money to buy a better car or to spend it on whatever expenses you want.

Let’s say you just bought your first car with a loan

In short, there is no better way to buy a car than to pay yourself first and then pay in cash . It doesn’t matter how good negotiator you are or the low interest rate you can get when applying for a loan. You can never overcome the benefit of paying in cash. As you can see, it can represent paying 20% ​​less .

An Example so that you can Clearly


This example not only applies to the purchase of a car, but for any relatively large purchase for which you have to ask for a loan. It is always better to pay in cash, both economically and for your peace of mind . Do not go into debt, it is not necessary. Live better and more calmly.

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