Advice for Retirees and Pre-Retirees

Lately, it seems like everyone is asking the same question: “Should I pay cash for my new vehicle or finance it?”

With news headlines buzzing about tariffs and rising car prices, it's understandable that many are eager to make a decision — and fast. But before jumping in, it’s important to know: deciding whether to pay cash or finance a car — especially when you're retired or nearing retirement — isn't as straightforward as it once was. The right answer is not the same for everyone. It depends heavily on your personal situation.

At Ignite Planning, we believe financial decisions — even ones that seem as simple as buying a car — deserve thoughtful consideration. Here’s what we encourage you to think through before making your choice:

Where Is the Money Coming From to Buy Your New Car?

If you’re planning to pay cash, first ask: where will the money come from?

• Cash set aside for this purpose: If you have a dedicated savings account for a vehicle purchase, using those funds can be a smart, straightforward move.
• Brokerage account: If you need to sell stocks to buy the car, think twice. Selling investments while the market is down can lock in losses — a move that could impact your long-term financial plan more than you realize.
• Retirement account: For many retirees and those within a few years of retirement, your retirement accounts aren’t just savings — they are your income. Tapping into these accounts for a large purchase like a car could mean taking a bigger withdrawal than planned, possibly pushing you into a higher tax bracket, accelerating the drawdown of your assets, or affecting your future income security. In most cases, it's better to preserve retirement accounts for their intended purpose: supporting your lifestyle throughout retirement.

What Are the Financing Terms Being Offered?

Today’s financial environment presents a unique opportunity.
Some car companies are offering ultra-low financing rates — think 0.9% or 1.99%. Meanwhile, even conservative money market accounts are earning over 4%.

That means your cash could actually be working harder for you by staying invested or saved, rather than being tied up in a depreciating asset like a car. In this case, financing — even if you technically could pay cash — might be the smarter financial move.

Of course, this hinges on the terms offered to you and whether you qualify for those low rates. If financing terms are high (think 5% or more), the math changes. We always recommend weighing the real cost of borrowing against what your money could earn elsewhere.

The Bottom Line

Buying a car isn’t just about picking the model and color — it’s about making sure the financial decision fits into the bigger picture of your life goals. What feels “smart” for one person might not be best for another.

At Ignite Planning, we don’t believe in cookie-cutter advice. We’re here to help you weigh your options, understand the trade-offs, and make a confident decision that moves you forward, not just today but for years to come.

FAQs: Paying Cash vs Financing a Car

Is it better to finance a car if interest rates are low?
When financing rates are low and your cash can earn a higher return elsewhere, financing often makes better financial sense.

Should retirees pay cash for a new car?
It depends. If you have dedicated cash savings for the purchase, paying cash can be smart. But pulling from retirement accounts could harm long-term income security.

Does selling investments to buy a car make sense?
Selling investments — especially when markets are down — can lock in losses. It's often better to avoid liquidating long-term investments for short-term needs like a car.

Ready to make smarter money moves — whether it's buying a car or planning your retirement?
Contact us today for a personalized conversation about your financial future.

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Frequently Asked Questions About Paying Cash vs. Financing a New Car

1. Is it better to pay cash or finance a new car?

That depends on your financial situation, interest rates, cash flow needs, and how the purchase fits into your broader financial plan. Paying cash avoids interest, while financing can preserve liquidity or take advantage of low rates.

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2. What are the advantages of paying cash for a car?

Paying cash means no monthly payments, no interest costs, and often stronger negotiating power. It also simplifies your budget and avoids debt.

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3. What are the benefits of financing a car?

Financing allows you to keep cash on hand for emergencies or investment opportunities, may offer promotional low-interest or 0% APR deals, and spreads the cost over time.

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4. How do interest rates affect whether I should finance?

Low interest rates can make financing more attractive, especially if you can earn a higher return with your cash elsewhere. Higher rates increase the cost of borrowing and tilt the decision toward paying cash if feasible.

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5. How should my overall financial plan influence this decision?

Your emergency fund, debt levels, investment goals, and cash flow priorities all matter. A strong financial plan helps weigh whether using cash now aligns with long-term goals.

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6. Should I consider taxes or investment returns when deciding?

Yes. If your cash could earn more in investments than the cost of financing, that may favor borrowing. Conversely, if financing cost outweighs potential returns, paying cash might be better.

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7. Does financing affect my credit score?

Financing can impact your credit—on-time payments can improve it over time, while missed payments can harm it. Opening a loan also causes a temporary credit inquiry.

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8. What costs should I include besides price when comparing cash vs. finance?

Consider interest, fees, insurance, maintenance, depreciation, and any investment opportunity cost of using your cash.

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9. Is it better to trade in my car or sell privately before buying a new one?

Selling privately often yields a higher price but takes more effort. Trading in is more convenient and can reduce your new car’s taxable amount depending on state law.

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10. How can a financial planner help with this decision?

A planner can model your cash flow, compare scenarios, and ensure your car purchase supports longer-term goals like retirement, debt reduction, and emergency savings.

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