Why did I take out a car loan when I could have paid in cash?

The purchase of a new car is a big problem. Last month, I made the biggest purchase of my life apart from real estate. This new vehicle purchase was slow and we had budgeted for it, but the funding was even better than expected.

Thanks to my excellent credit, Toyota has offered a 0% APR for the purchase. Even though we had enough money to buy the car, I was not going to make the contract. Here's why it makes sense to borrow at 0% even though you can pay in cash.

Why I bought a new car

I am not the biggest fan of buying cars. The vehicles quickly amortize the badets, which simply allows you to move from one place to another. My main car is a 2008 Corolla that I bought new in 2007. I do not plan to replace it so soon.

My wife's main car was also 10 years old. His SUV was ideal for the needs of our family and paid off. It is good that I spend so long without car payment! But with the upcoming arrival of our third child, it was time to modernize and get a family car offering plenty of space for our growing family.

After much research on new and used minivans and SUVs, we opted for a new Toyota Sienna. The local Toyota dealer offered a lot on Father's Day. So we accepted and brought the car home.

The offer 0% APR

Although I know that my credit is excellent, I planned an interest rate of 3% to 4% on a new car loan. Before going to the dealership, I made some purchases and I was pre-approved for offers of this type.

But when we told the seller that we really wanted to buy the van, he badyzed our credit through the system and came back with the offer at 0%. We had the choice between 0% or a discount on the purchase, but knowing the value of time money, I knew that it would be better to borrow and pay off the car on five years at 0% APR.

Why 0% APR can be a good idea even if you have the money

I am generally opposed to debt and do not encourage the purchase of new cars or the granting of car loans. I did a ton of research on the vehicle we were looking for and, based on what I saw, it retains enough value so that you do not save as much by buying a slightly used model. But in terms of interest, the 0% rate made this loan logical for the following reasons:

Preserve the money. The first benefit of buying the car with a loan was to pay less money in advance. We paid a $ 10,000 payment and my wife's old car in exchange. But as a self-employed person, it's a good idea to keep more money in your pocket (more than for someone with a full-time job and a reliable salary). The loan meant that we did not need to drain our savings further.

Earn interest. If you can earn a higher interest rate with a savings account than loan fees, you'd better keep the money as long as possible. I earn interest on the money I saved while paying no loan fees. I know that I will always win as little as possible. I can earn compound interest on my money because I've kept it essential.

Do not forget that $ 1 today is worth less in the future. If you can pay a dollar today or in the future, you'd better pay in the future. Thanks to inflation, a dollar in one, two, three, four and five years will almost certainly be worth less than a dollar the day of the car purchase. Delaying payments at no additional cost also gives you this invisible financial benefit.

The right choice for my family

My wife was not happy to switch from SUVs to minivans – it certainly does not have the same cool factor. However, for a family of five, it was the right choice for us. We now have plenty of room, all the latest security features and we could buy it with the money we borrowed for free.

I have the money to pay off the loan in full, but I do not pay it a day in advance with the contract I got. Only 60 payments and I will be free of debt again, outside of my mortgage. But in some cases, debt is quite logical.