# Is car loan the better option when one has already saved enough to cover the purchase

Let's say someone has saved \$100 000. There is no specific purpose for this saving

Now there is a car that cost \$62 000

Financing the car entirely via a bank loan would cost around 50% of the salary over the loan period leaving the buyer with just enough to live (house, food, clothes, etc....)

Would it be money smart to just buy straight from the savings or let the bank loan do it while keeping the savings ?

What approach would you suggest ?

• I don't have the pointer handy, but someone posted essentially the same question in the last month or two. Commented Jan 14, 2023 at 20:35
• @keshlam I suppose this is a recurrent theme then. No me though Commented Jan 14, 2023 at 20:59
• What I would suggest is to buy the cheapest functional used car you can find for cash and invest the rest of the money. Commented Jan 14, 2023 at 21:27
• Does this answer your question? Does it make sense to take loan when I have the money to pay the full amount? Commented Jan 17, 2023 at 14:27

I'm coming at this from a U.S. perspective - this might be very different in other countries.

If the loan payments eat up half of that person's salary, that's likely way too much car no matter how they fund it - financing, leasing, or buying outright.

Some quick math - if they're looking at a \$62k loan for 60 months at 3.5%, the payments would be \$1,128/mo. That means their take-home pay is \$2,256/mo or \$27,069/year (generously assuming the "half of salary" means half of take-home pay - if it's half of pre-tax salary... even worse). Assuming a 25% effective tax rate (fed+state+FICA), gross pay is \$36,092.

The average monthly rent in the U.S. for a studio apartment in 2022 was a hair under \$1,100/mo (https://www.statista.com/statistics/1063502/average-monthly-apartment-rent-usa/). Between that and the car payments, there's no room left for food or anything else...

Now there are situations where this COULD still be financially prudent. But without those details, it doesn't look good.

Also keep in mind that there would be a big difference between buying a new BMW for \$62k and a very used Bentley for the same price - maintenance and repair costs and all of that. Insurance too.

• Hello. Thanks for your reply ! Commented Jan 14, 2023 at 21:01
• @stevy21 cars are much more than the purchase price. Insurance and upkeep (tires aren’t free!) of a nice new car can get expensive. But if you can afford it while still maintaining an adequate Emergency Fund, then make yourself happy. Commented Jan 15, 2023 at 7:12
• @RonJohn Thank you for your contribution. Emergency fund ! That's an important point. Commented Jan 15, 2023 at 11:57