The most common (and realistically feasible) method of buying a car is to buy it with a loan/credit card, then pay it off in bits every time interval.

However, say that I could buy a car in full when I've fully decided that I should buy a car. Should I? Of course you will save up on interest that would have cost you a lot otherwise, but am I missing anything? Are there any disadvantages to buying big items in full?

Take note that this question doesn't only apply to cars. It applies to big things in general.


If you have enough money to buy a car in full, that probably means you have good credit. If you have good credit, car dealerships will often offer 0% loans for either a small period of time, like 12 months, or the entire loan.

Taking a 0% loan is obviously more optimal than paying the entire lump sum up front. You can take the money and invest in other things that earn you more than 0%.

However, most dealerships offer a rebate OR a 0% loan. Some commenters below claim that the rebate is usually larger than the saved interest, so definitely do the math if you have that option.

  • 3
    On the other hand, those 0% loans often come with the tradeoff of a higher price on the car -- they have to earn their profit somewhere. Always negotiate price of the car first, THEN discuss whether dealer financing makes sense. Also, there's the peace-of-mind factor of not having to worry about when payments are due or when the 0% period might end. What is theoretically financially optimal, and what is optimal in practice, are not always the same thing.
    – keshlam
    Oct 17 '14 at 1:31
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    Except that almost always if they'll offer you 0% financing they'll also offer a rebate if you don't take the 0%. The only time I've seen cheap financing without rebates is with the Saturn--and that was because they never modified the asking price, period. Oct 17 '14 at 1:31
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    In many cases it saves money to take the rebate from the dealer and get a loan from a Credit Union. Frequently the rebate is bigger than the interest. To do this you need to arrange for the loan before going to the dealer. Oct 17 '14 at 10:04
  • All good comments. I incorporated them into my answer, thanks.
    – Philip
    Oct 17 '14 at 15:08
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    +1 getting a 0% loan is great for cases when buying the car with cash will leave you with little wiggle money. Paying for it slowly will make sure you still have 'emergency' money and aren't broke all at once.
    – Bobo
    Oct 17 '14 at 19:36

As a general rule of thumb, and assuming you have a choice, my advice is to pay cash for things things that depreciate, expenses, and consumables. Consider credit (even if you have cash) for things that will appreciate in value or generate cash flow. That is, use credit as leverage.

  • These days, I hesitate to assert that houses will increase in value. We've recently seen major counterexamples.
    – keshlam
    Oct 17 '14 at 1:32
  • I can't think of any scenario where credit is superior to cash. Oct 17 '14 at 1:32
  • Good point. editing answer
    – JohnFx
    Oct 17 '14 at 1:35
  • What do you mean use credit as leverage? I'm sorry, I don't quite understand.
    – Zaenille
    Oct 17 '14 at 1:40
  • For example, I bought an investment property on credit (even though I had the cash) which I am renting out with positive cash flow. Essentially I am using someone else's money to make money. That frees up my cash for other profitable endeavors or as collateral to borrow more money. This enables me to invest more than I have. This is what I mean by leverage.
    – JohnFx
    Oct 17 '14 at 1:45

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