Why is buying a car on loan cheaper than paying in full?
2 Answers
Here is a detailed explanation of why buying a car on loan is cheaper than paying in full: 1. Loan processing fee: Dealers can charge a loan processing fee for financing a car purchase. 2. Dealers profit from full payment: For dealers, whether it's a loan or full payment, they receive the full amount, plus an additional loan processing fee, so buying a car on loan is more favorable than paying in full. Below is additional information about buying a car on loan: 1. Funds: A loan allows you to drive the car home even if you don't have sufficient funds. 2. Installment payments: Installment loans can be considered, but they are not cheap, as 4S stores charge a processing fee.
Buying a car on loan may seem cheaper at first glance, mainly because car dealers and banks run promotions to make more profit. They attract loan customers through discounts or low interest rates, allowing them to earn extra from the interest. For example, a 0% interest plan might make you feel like paying small monthly installments is manageable, but in the long run, the accumulated interest could end up costing more than paying in full. I often discuss this with friends—paying the full amount upfront is more practical, as it avoids debt pressure. If you're tight on cash flow, a loan might help in the short term, but watch out for hidden fees like handling charges. In short, that's how the auto industry works—you need to keep your eyes open to save money.
