Auto Loan Calculator

Pay cash when the loan's rate is higher than the safe, after-tax return the cash earns; finance when it is lower. Most retirees who can afford the car outright assume cash is always better because it avoids interest. That is true only if the money would otherwise sit idle. Money left invested keeps earning while you pay the loan from it month by month, so a low promotional rate can leave you ahead.

With the calculator's defaults, a hypothetical retiree buys a $48,000 car, trades in her old one for $12,000, puts $6,000 down and needs $32,160 more including sales tax. A 48-month loan at 6.5% costs $763 a month and $4,448 in interest. If the $32,160 stays in a money market earning 3.5% after tax and pays each month's installment, it runs out $2,248 short by the end: paying cash comes out ahead by $2,248. At a 1.9% dealer rate, the same comparison favors the loan by $1,165.

Either way the gap is small next to the price of the car. The larger risks are negotiating a poor price, taking a long loan on a car you may not keep, and raising the cash in a way that triggers tax. The sections below cover each.

It follows the money you would have spent. If you finance, that sum stays invested and each month it earns the return you enter and pays one loan installment. At the end of the loan, whatever is left is financing's advantage. If it has run out, the shortfall is how much more the loan cost than paying cash.

This is the same as comparing the APR with your return, turned into dollars. When the two rates are equal, the result is zero. The return to enter is a safe, after-tax yield: a money market fund, a CD or a Treasury bill, less the tax on its interest. A stock return does not belong here. The loan payments are certain; a stock portfolio can be down 20% in the year you need the money.

When the APR is above your return, a longer loan widens the gap in favor of cash. When the APR is below it, a longer loan widens the gap in favor of financing. The term table in the calculator shows the verdict at every length.

From money set aside for it, not from the reserve that carries you through a market downturn and not, if you can avoid it, from a traditional IRA in a single year.

• A car fund. A replacement car every eight to twelve years is predictable. Holding its cost in a separate money market or short Treasury ladder means the purchase never competes with the cash reserve.
• A taxable account. Selling investments may realize capital gains. Choose lots with little gain, or sell in a year when your income is low.
• A traditional IRA. The whole withdrawal is taxable income. A $35,000 withdrawal on top of a normal year can push part of your income into the next bracket, make more of your Social Security taxable and, two years later, raise Medicare premiums; the Medicare and IRMAA guide shows the thresholds. A loan paid from normal monthly withdrawals spreads the tax, and can be cheaper overall even at a rate above your return.
• A Roth IRA. Qualified withdrawals are tax-free, but Roth money is usually the last you want to spend; see the guide to withdrawal order.

Once required minimum distributions begin, at 73, or 75 if born in 1960 or later, part of each year's distribution can go into the car fund, so the next purchase is paid from money you had to withdraw anyway.

For some buyers, for 2025 through 2028. The One Big Beautiful Bill Act created a deduction of up to $10,000 a year for interest on a loan taken out after December 31, 2024, to buy a new vehicle for personal use whose final assembly took place in the United States. It is available whether you take the standard deduction or itemize (IRS).

• New vehicles only. Used cars do not qualify, and the loan must be secured by the vehicle.
• Final assembly in the U.S. The vehicle information label on the window shows where it was assembled; the VIN also identifies the plant.
• Income limit. The deduction phases out above $100,000 of modified adjusted gross income, or $200,000 for joint filers (IRS).

If you qualify, the loan costs less than its APR after tax. A rough way to reflect it in the calculator is to multiply the APR by one minus your bracket: 6.5% in the 22% bracket is about 5.1%. Many affluent retirees are above the income limit, and the deduction is scheduled to end after 2028.

One that ends well before you expect to replace the car or stop driving. A 72- or 84-month loan on a car bought at 74 runs to 80 or 81, and a car loses value fastest in its first years, so for much of a long loan you owe more than the car is worth. If the car is totaled, or a health change means selling it, you pay the difference.

Negotiate in this order: the out-the-door price, then the trade-in, then the financing. A dealer who asks what monthly payment you want can reach it with a longer term or a higher price. Arrive with a written pre-approval from a credit union or bank and ask the dealer to beat it. Decline add-ons such as paint protection and extended service contracts at signing; they can be bought later if you want them.

• Tax on raising the cash. The comparison assumes the cash is available without tax. If it would come from a traditional IRA, the true cost of paying cash is higher.
• The car loan interest deduction. Not modeled; see above for an adjustment.
• Fees. Title, registration and documentation fees are not included.
• Insurance, fuel and upkeep. These are the same whether you pay cash or finance. Include them in your spending plan with the budget planner.