Here is another article for buy car with cash vs. buy car with auto loan. Previously, we have discussed which one is better in many kind of scenario. Here is one where we compare if you buy a car with cash and buy a car with auto loan and use the cash to pay off the auto loan. This scenario is unlike all previous cases, where you keep the money in the same place but you have to pay the monthly car payment from other source of income. These are some of the previous articles:

• Buy car with cash: good or bad?
• Buy car with cash in Malaysia: Smart or Stupid?
• Buy car with cash when car loan is high: Smart or Stupid?

Buy car with cash

Let’s say here is a case where you going to buy a car with $38,000 cash or go for a car loan for a year. Before this, the money you are saving in a fund which gives a return of 5.85% a year. The calculation goes like this:

• Cash paid for car: $38,000
• Cost for car loan: $0
• Earning lost on cash: $38,000@5.85% a year = $1161.54 (See the table below)
• Total cost of the car: $39,161.54

Buy car with auto loan

• Cash paid for car: $0
• Cost for car loan (Total interest in a year): $1,214.92
• Earning on cash: This case is where you use the cash $38,000 to pay the monthly car installment every month. So the earning on cash based on the table below is $1161.54.

Table of where the $38,000 cash go every month.

• Total car loan interest: $1,214.92 – $1161.54 (Total interest earned over 1 year) = $53.58
• Total cost of the car: $38,053.58

Again, taking up a car loan seems bring some advantages in many scenarios even you use the principal to pay off the car loan every month. Need no extra money from other source of income to pay the monthly car payment.

In conclusion, it is worth to take up a car loan if you are able to place your money ($38,000 in this case) to somewhere which has higher return than the interest rate. Otherwise if there is no any better place to keep the money with high return than the interest rate, buy the car with cash will be a smarter choice.