Paying with Cash

Cash from Lines of Credit

Many vehicle purchases labeled as "cash deals" are often financed through a Line of Credit (LOC) rather than actual saved cash. While LOCs, especially Home Equity Lines of Credit (HELOCs), are appealing due to their lower interest rates compared to conventional loans, they are primarily designed for emergencies or investment opportunities—not for vehicle purchases.

Here are 7 key reasons why using a Line of Credit for a vehicle purchase may not be the best financial choice:

Cash from Savings Instruments

Withdrawing funds from Guaranteed Investment Certificates (GICs), Tax-Free Savings Accounts (TFSAs), or Registered Retirement Savings Plans (RRSPs) to make a cash purchase for a new vehicle might seem like a convenient option.

However, this decision often comes with financial downsides.

  • For instance, withdrawals from RRSPs are treated as taxable income, potentially increasing your tax liability.
  • While TFSAs offer tax-free withdrawals, using the funds for a vehicle purchase reduces your opportunity to benefit from long-term, tax-free investment growth.
  • Similarly, cashing out a GIC prematurely might lead to penalties or missed interest earnings.

In most cases, keeping these savings invested allows them to continue growing as intended, helping you secure greater financial stability in the future.

 

Heffner ToyotaPaying with Cash