Auto Loan vs Cash Purchase Calculator

Compare an auto loan vs paying cash for a car using real costs and opportunity cost

When you buy a car, the headline price is not the full story. Many people can technically pay cash, but still consider an auto loan so they can keep money invested or keep extra liquidity. This calculator is built for that specific decision: if you can afford the car either way, does financing look better or worse once you account for total interest and the potential return on cash you keep invested?

The result is not about emotions, preferences, or whether debt is “good” or “bad.” It is a numbers-first comparison between two cash flows. Option 1 is a cash purchase, where you pay the full out-the-door amount today. Option 2 is financing, where you pay a down payment today and then repay the remaining amount over a fixed term. The key trade-off is simple: financing costs interest, while paying cash has an opportunity cost because the cash is no longer available to earn returns or act as a buffer.

This tool focuses on the most common practical setup. It uses a standard fixed-rate loan payment formula to estimate monthly payments and total interest. It then estimates how much the “kept cash” could grow if invested over the same time period, using your expected annual return. That gives you a clean comparison: investment gain from keeping cash vs interest cost from borrowing. If the investment gain is higher than the interest, financing looks better on paper. If interest is higher than the investment gain, paying cash is usually the better financial move.

Assumptions and how to use this calculator

• The loan is a standard fixed-payment installment loan (typical auto loan structure) with a constant APR and term.
• Sales tax and fees are applied to estimate an out-the-door cost. If your area includes tax in the advertised price or uses a different tax base, adjust the inputs accordingly.
• “Kept cash” is assumed to be invested and left untouched for the full loan term, compounding monthly at the given return.
• Monthly loan payments are assumed to come from income, not from the invested cash pool. This keeps the comparison focused on the cost of borrowing vs the benefit of keeping liquidity.
• This calculator does not include insurance differences, dealer incentives tied to financing, maintenance, depreciation, or tax deductions. It is strictly financing cost vs cash opportunity cost.

Common questions

What is the “out-the-door” cost and why does it matter?

Out-the-door cost is what you actually have to pay to take the car home: vehicle price plus sales tax plus required fees. If you compare financing vs cash using only the sticker price, you can understate the true cash requirement and distort the comparison. Always use the best estimate of your real total purchase amount.

Why does the investment return input change the result so much?

Because it represents the alternative use of your money. If your expected return is low (or you plan to hold cash in a low-yield account), the benefit of financing is smaller, so interest is more likely to dominate. If your expected return is high, the model will show more “gain” from keeping cash invested, which can make financing look more attractive. Keep this input realistic.

What if I do not know my expected return?

Use a conservative estimate. For cash-like savings, a low single digit percentage is typical. For riskier investments, long-term averages may be higher, but they are not guaranteed and can be negative over shorter periods. If you are unsure, run the calculator twice: a conservative return and an optimistic return, then see if the decision flips.

What if my loan APR is 0% or very low?

If the APR is extremely low, total interest can be near zero, and financing tends to look better because you keep more cash available and the opportunity cost of paying cash is higher. The only caveat is that “0% deals” can include hidden costs, such as losing a cash discount or paying higher fees. If that applies, add the difference into the fees input.

Should I include my down payment in the cash I invest?

No. The calculator treats the down payment as cash you spend today in the financing option. The investable “kept cash” is the amount you did not spend upfront by choosing a loan instead of paying the full out-the-door cost.

When does paying cash usually win?

Paying cash usually wins when your loan APR is meaningfully higher than your realistic expected return, especially when you are not actually going to invest the kept cash. If the kept cash ends up sitting idle, financing is just an extra cost. Cash can also win when it unlocks a discount or reduces fees. If you get a better price for paying cash, reflect that by reducing the vehicle price or fees.