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Skipping auto finance completely seems like a “financial flex” that many Americans are happy to indulge in. Roughly 1 in 5 baby boomers or older, in fact, pay cash for their car purchases, according to a CDK Global survey (1) — and that ratio rises to nearly 5 out of 10 Gen Z car buyers.
Simply put, car loans seem to be less fashionable among younger Americans.
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On paper, this might seem like a smart move. Auto loan rates for super-prime borrowers were roughly 4.55% and 6.30% for new and used cars, respectively, per Experian’s Q1 2026 State of the Automotive Finance Market report (2). So, looking at those rates, skipping the loan agreement might feel like an instant, guaranteed return on investment.
But the move could be costing you thousands of dollars over the long run. Here’s why.
Depreciation and opportunity costs
As of May 2026, a typical new car sold for roughly $49,220, according to Kelley Blue Book (3). Paying that in cash is a big up-front commitment. And unlike stocks or real estate, new cars rapidly shed value. In fact, a new car can be expected to lose roughly 30% of its value in the first two years alone, according to Kelley Blue Book (4). Beyond that point, it continues to depreciate at an annual pace of 8% to 12%.
In other words, you’re on track to lose tens of thousands of dollars in just the first few years of ownership. This depreciation cannot be fully avoided — but financing a portion of the purchase at 4% to 6% can offset some of the exposure.
Meanwhile, the cash you save by financing can potentially earn a higher return in other assets. The S&P 500, for instance, has delivered a roughly 10% annualized return since 1957, according to Fidelity (5).
This is the potential opportunity cost of paying for a car in cash instead of borrowing at a reasonable interest rate.
What can you do?
The key might be to focus on carrying costs instead of the up-front price tag. Even though you could probably afford a $50,000 car in cash, financing just half of that leaves you with $25,000 that can be put to work elsewhere.
To minimize the cost of this $25,000 auto loan, consider shopping around for the best rates. Every 0.01% you can save on the loan term could be worth a lot over the long term.
You might also want to compare insurance rates to keep other carrying costs low. For instance, by using a comparison platform like Insurify, you can instantly view quotes from top-rated providers to ensure you aren’t paying a hidden “loyalty tax” to your current insurer.
Just answer a few basic questions, and Insurify will show you the most affordable deals in as little as three minutes. Not only is the process 100% free, but you could also save up to 15% by bundling your car and home insurance. Keep in mind that, in most cases, you can switch plans before you’re up for renewal — just make sure to watch out for any early cancellation fees in the fine print.
Where to put the extra cash
With the extra cash saved from these moves, you can then start thinking about how it can be deployed to invest in robust assets, such as rental real estate. If you’re looking to generate passive cash flows through real estate, the Arrived Real Estate Income Fund is designed to generate regular dividend income while focusing on capital preservation.
The fund already manages more than $83 million in assets and has historically delivered an annualized cash yield of more than 8.1%. To put this in perspective, even the "aristocrats" of dividend stocks struggle to reach a high-water mark of 5.51%, according to Morningstar (6).
How it works is simple: Arrived offers short-term loans for professional real estate projects seeking to renovate, refinance or fund new construction. Each loan goes through a disciplined selection process and is backed by residential real estate, adding another layer of underwriting rigor and downside protection.
Even better, Arrived Real Estate Income Fund investors also have quarterly liquidity options beginning six months after their initial investment, offering more flexibility than many traditional income-focused investments.
Think about getting some help
Finally, if measuring opportunity costs, interest rates and investment returns is too much work, you can hire an expert financial advisor through Advisor.com, which is a platform that connects you with an expert near you, for free.
Advisor.com does the heavy lifting for you, vetting advisors based on track record, client ratios and regulatory background. Plus, their network comprises fiduciaries, who are legally required to act in your best interests.
Just enter a few details about your finances and goals, and Advisor.com’s AI-powered matching tool will connect you with a qualified expert best-suited for your needs based on your unique financial goals and preferences.
Finding the right advisor isn’t always easy — there’s no one-size-fits-all solution. That’s why Advisor.com lets you set up a free initial consultation, with no obligation to hire, to see if they’re the right fit for you.
Once you’ve got the right financial advisor in your corner, you can optimize every purchase, from new cars to new homes, to save money.
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
CDK Global (1); Experian (2); Kelley Blue Book (3), (4); Fidelity (5); Morningstar (6)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
