I want to buy a 2020 Ford truck for $23,000 in cash — but the dealer is giving me $500 off if I get a loan. If I’m going to pay it off right away with no prepayment penalty, is it worth it?

The argument for taking out the car loan

When a $500 discount is being dangled in front of you, taking out the car loan would seem to be a no-brainer.

If you can read the fine print of the paperwork very carefully to make sure there are no loan origination fees, no prepayment penalties and no hidden costs, passing up the money might seem shortsighted. After all, a car is an expensive purchase and getting $500 off could help make it a little cheaper.

Having a mix of different kinds of credit can also be beneficial to you, as it can help your credit score. Getting the loan and paying it off immediately could add a paid-off installment loan to your credit record, which can show lenders that you can manage another type of credit if, say, you only have credit cards otherwise.

Again, though, you'd want to do your due diligence and make sure there are absolutely no hidden costs. You'll also want to be absolutely sure you can trust yourself to pay back the loan in full, right away.

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The argument for not taking out the car loan

While there are reasons why taking out the loan could make good sense, there could also be some downsides.

For one, you may have to fill out a lot of paperwork to get approved for the loan. This can be a hassle, and may not be worth your time.

There's also the impact on your credit score to think about. While having a mix of different kinds of credit can be good, applying for a new loan can also have an adverse impact.

Specifically, you'll get an inquiry on your credit record, which typically lowers your score and stays on your credit report for two years. Opening and closing credit accounts — even those paid off in full — can also impact your credit score by shortening the length of your credit history, known as your credit age.

Although the negative impact should be temporary, if you are planning for some major borrowing in the months or years after taking the unnecessary car loan — such as buying a home — you may not want to take even the temporary hit to your credit.

Lastly, if you aren't confident that you'll follow through on loan payback once the car is in your driveway, then you should steer clear.

There's no reason to take the chance of paying potentially costly debt for months or even years just because you were chasing a $500 discount and got sidetracked from using the cash you'd set aside.

Ultimately, only you can know if the time spent applying for the credit is worth it, or if you'll be responsible when borrowing and benefit from the record of a well-managed loan on your credit report.