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Personal Finance
3 minute read

When it comes to making a big purchase, one of the first decisions you’ll need to make is how you’re going to pay for it. While many financial experts recommend using cash whenever possible, there are times when financing the purchase might make more sense. In this article, we’ll explore 3 basic questions to ask yourself when deciding whether to make a large purchase in cash or explore other options.

1. Can you afford to pay with cash?

Before diving into the benefits of financing a large purchase, it’s crucial to assess your current financial situation. Ask yourself whether you can comfortably afford to pay cash without depleting your savings or affecting your ability to pay for day-to-day expenses.

While paying in cash may provide a sense of security and prevent debt, it’s essential to strike a balance between spending and saving. If using cash for a major purchase would leave you financially vulnerable, it might be wise to explore other options.

2. Are there financing options with better interest rates?

One of the advantages of financing a major purchase is the potential to secure a low interest rate. While using cash may seem like the most straightforward option, consider whether investing the cash you have instead could earn you enough to offset your interest payments or even return a higher yield.

By financing a major purchase and investing your cash wisely, you have the opportunity to make a profit over time. However, you should conduct thorough research and consult with a financial professional before making any investment decisions.

3. Will financing help improve your credit score?

Your credit score plays a significant role in your financial health and can impact your ability to secure better interest rates in the future. If you’re looking to boost your credit score, financing a major purchase may be a wise strategic move.

By responsibly using credit options and making on-time payments, you can demonstrate your creditworthiness to lenders. This could improve your credit score over time, opening up opportunities for better financial products and terms in the future.

Making an informed decision

When deciding if it’s better to make a large purchase in cash or explore financing options, it’s essential to consider your unique financial circumstances and goals. Here are a few additional
factors to keep in mind:

  • Financial priorities: Assess your financial priorities and decide if paying cash aligns with your long-term goals.
  • Return on investment: Consider the potential return on investment if you invested the cash instead of using it for the purchase.
  • Emergency savings: Ensure you have enough before depleting your cash reserves for a major purchase.
  • Monthly payments: Evaluate whether you have the income to comfortably make monthly payments if you choose to finance the purchase.
  • Opportunity cost: Consider if there are other ways to use the cash that would benefit you more in the long run.

Carefully weigh these factors to determine how they align with your personal financial journey, so you can make an informed decision that works for you.

Deciding whether to make a large purchase in cash or explore financing options is a personal choice that depends on your financial situation and goals. Don’t hesitate to consult a financial professional for personalized advice tailored to your needs. They can provide guidance based on your financial situation and help you make the best decision for your long-term financial health.

This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.


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