IncomeGrid

Car loan or pay cash: a simple comparison

If you have the cash, the question is not just 'can I afford the car' but 'what would that money earn if I kept it invested?' The comparison is simple once both numbers are on the same basis.

Step 1: know the loan's real cost

Use the APR on the loan offer, not the monthly payment. The CFPB recommends getting pre-approved and comparing offers before you go to the dealer.

Step 2: know what your cash earns after tax

Interest is taxed; loan interest on a personal car usually is not deductible. So compare the APR with your savings' after-tax yield. If the loan costs more than your money earns after tax, paying cash (or a bigger down payment) usually wins; if a low promotional rate costs less than what safe investments earn after tax, financing and keeping the cash invested can come out ahead.

Step 3: look beyond the bank

Many people compare only with their savings account. IncomeGrid has 40,000+ investment options screened, from Treasury bills to bonds and funds, with risk levels 1–5. IncomeGrid ranks every item by yield after tax for where you live: federal, state and each investment type (Treasuries, municipal bonds, corporate bonds, funds, REITs and filed offerings are each taxed differently). Keep money you will need soon in low-risk, liquid options.

Check what your cash could earn →

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