Paying for a vehicle with Cash

What you should know about paying for a vehicle with CASH

1 ❖ MAY BE PENALTIES FOR CASHING OUT INVESTMENTS
Many mutual funds have significant monetary penalties if they are cashed out before their maturity. You may wish to leave your investment in tact and finance with our Dealer Plan instead.
Most mortgages allow you to pay off up to 15% of the principal amount borrowed each year without a penalty. By paying down your mortgage instead of paying cash for your vehicle, this significantly reduces the interest charges and the amortization of your mortgage. The savings more than offsets the cost of interest on a vehicle loan.
When you pay cash, there is no establishment of a positive credit rating. A positive credit rating is essential for borrowing money from financial institutions for things such as mortgages, lines of credit, home improvement loans, credit cards, etc. Financing through your Dealer Plan establishes your credit rating.
You are depleting a large sum of money from your savings or investments when you pay cash for a vehicle. This money could be needed for emergencies at a later date. e.g.:

  • a major and unexpected home repair

  • a loan to a family member needing money

  • a trip due to a family emergency

  • an illness or disability where savings are needed to replace income from work for special medical bills, medication and treatments, a funeral, etc.
In the event that you become ill or injured and unable to work, you may have little money to draw upon from savings for income if you have paid cash for your vehicle. By financing the vehicle and insuring the loan with life and disability loan insurance, you can leave your cash in savings or investments. In the event that you were unable to work, you would still have your cash in tact and be paying for the vehicle with insurance benefits instead of your savings.

If you are over 50, you have the added benefit of being able to qualify for very inexpensive credit life and disability insurance premiums. This is due to the fact that the insurance is an averaged premium, which means that all customers that qualify (generally between the ages of 18 and 65) pay the same premium. Customers over 50 would normally pay much more money for insurance than a younger person if it was purchased directly from an insurance company.
Paying cash for a vehicle depletes money from your savings. This limits your investment opportunities. At some time in the future if you still have your savings, they could be used for:

  • a down payment for a real estate purchase such as an investment property, cottage, or a larger home

  • home renovations or a pool

  • Registered Retirement Savings Plan (R.R.S.P.’s), R.E.S.P.'s, Canada Savings Bonds, Guaranteed Investment Certificates (G.I.C.’s), Mutual Funds, Tax Free Savings Account


Special Note:

The Tax-Free Savings Account (TFSA) is a flexible, registered general purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA complements existing registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP).

How a Tax-Free Savings Account Works:

  • Canadian residents age 18 or older can contribute up to $5,000 annually to a TFSA.

  • Investment income earned on a TFSA is tax-free.

  • Withdrawls from a TFSA are tax-free.

  • Unused TFSA contribution room is carried forward and accumulates into future years.

  • Contributions are not tax-deductible.

  • Choose from a wide range of investment options such as mutual funds and Guaranteed Investment Certificates.

  • Neither income earned within a TFSA nor withdrawls from it affect eligibility for federal income benefits credit such as Old Age Security, the Guaranteed Income Supplement and the Canadian Child Tax Benefit.

  • Funds can be given to a spouse or common-law partner for them to invest in their TFSA.

  • TFSA assets can generally be transferred to a spouse or common-law partner upon death.

The next page (INVESTING YOUR MONEY INSTEAD OF PAYING CASH) is called a INVESTMENT ANALYSIS. It demonstrates that even though you pay interest on a Dealer Plan loan, you can make enough money through a conservative investment that would more than pay for the interest on a loan as well as an additional profit.