Vehicle EconomicsCash vs Finance a Car
Paying cash saves the interest, but financing lets that same cash keep earning elsewhere. Enter your own numbers to see which side actually wins.
Why this comes up
You have enough cash to pay for the car outright, but that doesn't automatically make it the right move. Financing at a low rate while your cash earns a higher return elsewhere can come out ahead, but only if that return is real and not just assumed. This engine puts the guaranteed cost of financing next to the assumed gain of staying invested.
How we calculated this
Financing's cost is the total interest paid on the amount you'd otherwise pay in cash. We project that same amount compounding at your assumed annual return over the loan term to get the retained-cash gain, and solve the exact return rate where the two break even.
Worked example, using this page's own defaults ($28,000 price, $4,000 down, 6% APR, 60 months, 5% assumed return): the guaranteed interest cost of financing and the assumed investment gain land close together, run the calculator above to see which wins with your own numbers.
What this means
- The interest cost of financing is locked in by the loan's own rate; the investment gain is only as real as your assumed return actually turning out to be true.
- Paying cash gives up liquidity entirely; financing keeps your cash available for emergencies, at the cost of the interest.
- If you're weighing a smaller, partial down payment instead of all-or-nothing, see Larger Down Payment vs Keep Cash for that version of the same tradeoff.
Limitations
The retained-cash return is an assumption you entered, not a promised or historical rate; this does not model investment risk, taxes on any gain, or your credit profile. See Methodology.
Methodology
This engine combines Vehicle Economics' fixed-rate amortization model (the standard loan-payment formula run out as a full month-by-month schedule) and break-even search model (a closed-form solve where one exists, otherwise a bounded search over a stated plausible range). See Methodology for the full detail.