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Own or owe?

Chris Farrell Oct 12, 2011

Question: I had a question about buying a new car. Simply, is it better to purchase the car outright or is it better to pay monthly over time? I know there would be a lot of caveats but in general what would you recommend? Thank you, Mike, Birmingham, AL

Answer: In general, I would recommend buying the car outright. Owning is better than owing. There is an important financial caveat to that answer: How flush is your savings?

Sometimes you don’t want to drain your savings for a major purchase like a car. In that case it makes sense to take advantage of OPM–Other People’s Money. You aren’t paying much in interest these days. There is no prepayment penalty with auto loans so you can always accelerate your payments. You can always put down a large down payment toward owning the car.

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