Do You Think Paying Loan Better Than Cash?

Recently, few numbers of my readers discuss the concept of paying cash vs paying loan for the purchases, such as car, house and so on.

loan vs cash

Most of the people who I known always claim that it’s better to get a car loan rather than paying it by cash even if you could. Likewise, property investment advisor always say that its better to get a home loan. These are some of the key reasons why they say getting loan is better than cash:

i) Income tax department won’t come to ‘disturb’ often.
ii) Buying thing with loan usually gets more gifts.
iii) You have more liquidity of your money. You can keep your money; you may need it in future.

Normally, it shouldn’t be quite tough to get a loan provided if you have clean record. For me, getting a loan is just simply mean ‘Pay Less Now‘ and ‘Pay More Later‘. To be precise, you will have to pay interest to the loan you are getting.

Loan = Cash (Down payment) + Interest

If you think that this is not a right way to paying loan for purchasing something then just let me clear some excuses commonly made by others:

i) Income tax only penalizes those who earn income illegally so there’s no reason to worry about any audit unless you do have something to hide.
ii) Try to beware of any kind of business strategies! All ‘gifts’ come from your pocket money, the more gifts you receive, then you should think the real value that you are receiving.
iii) It’s not a great idea to say that you can have more liquidity if you paying loan. For my thinking, if you paying loan means that you will also pay more fees than actual value. When you want to sell your item, you will need to pay these fees again if you are still under mortgaged or need to get approval from bank to precede the selling process.

But, cash purchased item can be sold off immediately. Sometimes you may sell it at good value if demand of the item increase and cause your item appreciates. So, do you think cash purchase sound like more liquid?

5 thoughts on “Do You Think Paying Loan Better Than Cash?”

  1. Yes, agreed with you, this is what I did also – settle all my loan first so that to avoid paying interest. This is also same practice to settle full amount in credit card statement, never let the bank have chance to earn our hard earned money:) BTW, one of my friends shared his opinion by not paying advance payment to settle his housing loan. What he said sounds “logic” also coz he emphasized on “inflation”. Means now he is paying RM800 for home loan, if he pays extra RM800(example) for advance payment every month in order to settle early, it means he will have less RM800 to enjoy now. But installment for RM800 p/m is “nothing” in 20 years later due to inflation. Just like some ppl who bought a house 20 years ago are paying RM300 homeloan p/m, now the RM300 per month for them is “nothing”, we easily can spend RM300 in shopping. So he prefer to enjoy his life NOW. He got his point also but I still prefer “financial freedom”…my homeloan is RM938 p/m but I pay RM3K to RM4K every month to my Flexi Loan account, coz plan to settle the loan ASAP. Thanks for your nice article and hope more ppl will benefit it 🙂 Good job 🙂 Will share your article in my blog 🙂 Thanks!

  2. I would like to contribute one more reason why paying using loan is better than using cash. If you hve investment opportunity that can offer you higher ROI than the loan interest, you should pay using loan. That is of course provided that your total debt level is still within healthy level.

  3. It’s all about which manner gives you the best return with the calculated risks taken into account within the stipulated time frame.

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