Should I Pay Cash for a Car or Finance It?

Cost example updated October 24, 2026

The same $25,000 car, both ways

Here are the inputs, stated in full, so every number below can be checked. Car price: $25,000. Savings at the start: $40,000. This first comparison leaves sales tax and title and dealer fees out of both sides, so both totals are understated by the same amount, add your state's tax and fees to both sides for your own total. The second example below includes them. A down payment is the chunk you pay on day one. APR is the yearly interest rate on the loan, and interest is the fee the lender charges for borrowing the money.

Paying cash

• Paid on day one: $25,000 (the full price)
• Interest: $0, nothing is borrowed, so no interest is charged
• Monthly payment: $0, there is no loan, so there is no payment
• Savings left: $15,000 ($40,000 minus $25,000)
• Total paid for the car: $25,000

Financing with 20% down

• Down payment: $5,000 (20% of $25,000)
• Amount borrowed: $20,000 ($25,000 minus $5,000)
• Loan terms: 6.5% APR, 60 months (five years)
• Monthly payment: $391 ($20,000 at 6.5% over 60 months)
• Total loan payments: $23,479 ($391 x 60 months, rounded)
• Interest: $3,479 ($23,479 minus $20,000 borrowed)
• Savings left on day one: $35,000 ($40,000 minus $5,000)
• Total paid for the car: $28,479 ($5,000 down plus $23,479 in loan payments)

Put side by side, the difference between the two totals is exactly the interest: $28,479 minus $25,000 is $3,479. The cash side ends with $0 interest and no monthly payment, and $15,000 left in savings. The finance side ends with $35,000 left on day one, then pays $391 a month for 60 months. One side pays less in total; the other side holds more cash on day one and carries a monthly obligation. That is the trade-off, in numbers.

Formula

First example, one $25,000 car, savings of $40,000 at the start, sales tax and title and dealer fees left out of both sides. Cash: $25,000 paid on day one, $0 interest, no monthly payment, $15,000 left in savings. Finance with 20% down: $5,000 down, $20,000 borrowed at 6.5% APR over 60 months, $391 a month, 60 payments total $23,479 as the page states it, interest $3,479 ($23,479 minus $20,000 borrowed), $35,000 left on day one. Total paid for the car: $28,479 ($5,000 down plus $23,479 in loan payments). The gap between the two totals is exactly the interest: $28,479 minus $25,000 is $3,479.

Second example, a $40,000 car at 8% APR, tax and fees included. Sales tax 6% is $2,400 plus $500 in title and dealer fees, for $2,900 in tax and fees; savings at the start $70,000. Cash: $42,900 paid on day one ($40,000 plus $2,900), $0 interest, $27,100 left. Finance with 10% down: $6,900 paid on day one ($4,000 down plus $2,900 tax and fees), $36,000 borrowed at 8% over 60 months, $730 a month, 60 payments total $43,797 as the page states it, interest $7,797 ($43,797 minus $36,000 borrowed), $63,100 left on day one. Total paid for the car: $50,697 ($6,900 plus $43,797). The gap is exactly the interest again: $50,697 minus $42,900 is $7,797.

Two lines decide the comparison, and both examples show them the same way. First, interest paid against cash kept on hand: cash pays $0 interest and keeps the least cash on day one ($15,000 in the first example, $27,100 in the second); financing pays $3,479 or $7,797 in interest and keeps the most cash on day one ($35,000 or $63,100). Second, a monthly obligation against no payment: cash has no monthly payment at all; financing has $391 a month in the first example and $730 a month in the second, for 60 months. A lower rate shrinks the interest line; a bigger down payment shrinks the amount borrowed and the monthly payment, and also shrinks the cash left on day one. Gas, insurance, upkeep, and the value the car loses over time are the same on both sides, so they are left out of both totals, and nothing the cash kept on hand might earn while it sits in savings is counted.

A second example at a different price and rate

Same structure, different numbers, a $40,000 car, an 8% APR, and tax and fees included this time. Inputs: price $40,000; sales tax 6% ($2,400) plus $500 in title and dealer fees, for $2,900 in tax and fees; savings at the start $70,000; finance side: 10% down ($4,000) plus the $2,900 in tax and fees paid on day one, $36,000 borrowed at 8% APR over 60 months.

Paying cash

• Paid on day one: $42,900 ($40,000 price plus $2,900 tax and fees)
• Interest: $0
• Monthly payment: $0
• Savings left: $27,100 ($70,000 minus $42,900)
• Total paid for the car: $42,900

Financing with 10% down

• Paid on day one: $6,900 ($4,000 down plus $2,900 tax and fees)
• Amount borrowed: $36,000 ($40,000 minus $4,000)
• Loan terms: 8% APR, 60 months
• Monthly payment: $730 ($36,000 at 8% over 60 months)
• Total loan payments: $43,797 ($730 x 60 months, rounded)
• Interest: $7,797 ($43,797 minus $36,000 borrowed)
• Savings left on day one: $63,100 ($70,000 minus $6,900)
• Total paid for the car: $50,697 ($6,900 paid on day one plus $43,797 in loan payments)

Again the gap between the two totals is exactly the interest: $50,697 minus $42,900 is $7,797. The higher price and higher rate make the interest line bigger than in the first example, $7,797 against $3,479, and the day-one savings gap is bigger too: $63,100 left against $27,100. The shape is the same; the size moves with the price and the rate.

What the trade-off looks like, in numbers only

Two lines decide the comparison, and both examples show them the same way. First, interest paid against cash kept on hand: cash pays $0 interest and keeps the least cash on day one ($15,000 in the first example, $27,100 in the second); financing pays $3,479 or $7,797 in interest and keeps the most cash on day one ($35,000 or $63,100). Second, a monthly obligation against no payment: cash has no monthly payment at all; financing has $391 a month in the first example and $730 a month in the second, for 60 months. A lower rate shrinks the interest line; a bigger down payment shrinks the amount borrowed and the monthly payment, and also shrinks the cash left on day one. Change any one input and both lines move, that is why the examples state every input.

What these examples leave out

Honest gaps, stated rather than filled with guesses. The first example leaves sales tax and fees out of both sides, as noted above. Both examples leave gas, insurance, upkeep (maintenance), and the value the car loses over time out of both totals, because those lines are the same whether the car is paid for in cash or with a loan, they do not change the cash-against-finance comparison. Neither example counts anything the cash kept on hand might earn while it sits in savings, because that depends on the account and is not part of the car price. Trade-in value is not in either example. Loan rates, tax rates, and fees vary by buyer, car, state, and lender, so your rate and your tax will move your numbers, the structure of the comparison does not change, but the dollar figures will.

Calculation transparency

Scope. One $25,000 car run both ways, then a second example at a $40,000 price and 8% APR with tax and fees included. Payment math only: gas, insurance, upkeep, and the value the car loses over time are the same on both sides and are left out of both totals.

Rules and time period. First example: $25,000 price, $40,000 savings at the start, sales tax and fees left out of both sides; finance side 20% down ($5,000), $20,000 borrowed, 6.5% APR, 60 months. Second example: $40,000 price, 6% sales tax ($2,400) plus $500 fees, $70,000 savings at the start; finance side 10% down ($4,000), $36,000 borrowed, 8% APR, 60 months. Monthly payments rounded as stated on the page.

Scope and limitations. Educational estimate only. The first example leaves sales tax and fees out of both sides, so both totals are understated by the same amount. Neither example counts anything the cash kept on hand might earn while it sits in savings, because that depends on the account and is not part of the car price. Trade-in value is not in either example. Loan rates, tax rates, and fees vary by buyer, car, state, and lender, so your rate and your tax will move your numbers. Prices vary by car, shop, and city. Get a written quote for your own car before you decide.

Source links checked November 6, 2026. Figures: Payment math checked for this page. Loan payment formula: monthly rate divided by one minus the monthly rate factor over the loan months. Tahoe cross-check: $66,952 at 8% over 60 months gives $1,358 a month and $14,501 in interest, matching the published Tahoe page. Tax and fee rates in the second example are stated assumptions, not a state quote. No external source figure is used on this page.

Primary sources: How much will my car payment be; Chevrolet Tahoe true cost; True cost of a used car; New vs used. How the numbers are calculated is written down on the methodology page, and every source is listed on the sources page.

Definitions

Down payment. The chunk you pay on day one. On this page, $5,000 in the first example and $4,000 in the second.

APR. Annual percentage rate, the yearly interest rate on the loan. This page uses 6.5% in the first example and 8% in the second.

Interest. The fee the lender charges for borrowing the money. On this page, $3,479 in the first example and $7,797 in the second.

Monthly payment. What the loan costs each month. On this page, $391 a month in the first example and $730 a month in the second, for 60 months.

Savings left. What stays in savings after day one. Cash leaves $15,000 of $40,000 in the first example; financing leaves $35,000.

Total paid for the car. Down payment plus all loan payments, or the full price when paying cash. On this page, $25,000 cash against $28,479 financed in the first example.

Questions people actually ask

Should I pay cash for a car or finance it?

The numbers in the example below are the whole answer in short form. Paying cash for the $25,000 car costs $25,000 in total with $0 interest and leaves $15,000 of $40,000 in savings. Financing it with $5,000 down costs $391 a month and $3,479 in interest over 60 months, and leaves $35,000 in savings on day one. The cash side pays no interest and has no monthly payment; the finance side keeps more cash on hand on day one and carries a monthly payment.

How much interest would I pay on a $20,000 car loan at 6.5% for 60 months?

About $3,479. The monthly payment is $391, so 60 payments total $23,479, and $23,479 minus the $20,000 borrowed is $3,479 in interest.

Does paying cash leave me with less money on hand?

On day one, yes, in the example below. Starting from $40,000 in savings, paying $25,000 cash leaves $15,000, while a $5,000 down payment leaves $35,000. The finance side still pays out $391 a month after that, so the gap narrows over the 60 months as payments are made.

Does financing a car cost more in total than paying cash?

In both examples below, yes, and the difference is exactly the interest. For the $25,000 car, financing totals $28,479 ($5,000 down plus $23,479 in loan payments) against $25,000 cash, a difference of $3,479. For the $40,000 car, financing totals $50,697 against $42,900 cash, a difference of $7,797. Running costs like gas, insurance, and upkeep are the same on both sides, so they are left out of both totals.

Does a bigger down payment change the comparison?

A lower rate shrinks the interest line; a bigger down payment shrinks the amount borrowed and the monthly payment, and also shrinks the cash left on day one. Change any one input and both lines move, that is why the examples state every input.

Run your own numbers

Put your own price, down payment, rate, and months into the calculator and it runs the same payment math as the examples above. If you are weighing a used car, the true cost of a used car page runs the full five-year picture, new vs. used compares those two paths side by side, lease vs. buy covers a third way to get a car, and how much car you can afford starts from the monthly payment and works backward. Whichever side you lean toward, run your own numbers first, the examples here are a starting point, not your total.

Figures: payment math checked for this page (loan payment formula: monthly rate divided by one minus the monthly rate factor over the loan months; Tahoe cross-check: $66,952 at 8% over 60 months gives $1,358 a month and $14,501 in interest, matching the published Tahoe page). The $25,000 starting comparison uses the inputs stated in the first example. Tax and fee rates in the second example are stated assumptions, not a state quote, your state, lender, and credit will set your actual rate and tax.

Related: Already have the loan? See what paying off your car loan early really saves.

Related: If you finance, the down payment matters. See how much to put down.

Related: Your credit score sets the finance side. See how much your credit score costs on a car loan.

Related: Financing can stretch to 84 months. See whether that is a good idea.