For a car, would you pay cash, finance for 0.9% or lease for 0.9%?
Dealer financing should be ignored until AFTER you have agreed on the price of the car, since otherwise they tack the costs of it back onto the car's purchase price. They aren't offering you  a $2500 cash incentive, but adding a $2500 surcharge if you take their financing package -- which means you're actually paying significantly more than 0.9% for that loan! Remember that you can borrow from folks other than the dealer. If you do that, you still get the cash price, since the dealer is getting cash. Check your other options, and calculate the REAL cost of each, before making your decisions. And remember to watch out for introductory/variable rates on loans! Leasing is generally a bad deal unless you intend to sell the car within three years or so. If you want the new car, pay cash for it. Here's why: By paying cash for the car, you immediately save $2,500 off the price of the car. That is not insignificant, it's 8.3% off.  By paying cash, you'll never be upside down on the car, and you can sell the car anytime you want.  You said that all you need to do is beat the 0.9% interest rate with your investment to come out ahead. That doesn't take into account the discount you would have gotten by paying cash. $30,000 invested for 5 years at 1.6% (rough estimate) would get you $2,500 (the discount), so the rate you need to beat to come out ahead is actually 2.5%. Still doable, but it is much less of a sure thing on a 5 year investment, and much less worth the trouble.  New cars are an expensive luxury. If you are wealthy enough, a new car certainly can be appropriate for you. However, if you don't like the idea of paying $30k in cash all at once, that is a strong indication that perhaps the new car is a luxury you aren't in a position to buy at this time. Borrowing the money and paying for it over time makes it psychologically easier to over spend on transportation. While this question is old and I generally agree with the answers given I think there's another angle that needs a little illuminating: insurance. If you go with an 84 month loan your car will likely be worth less than the amount owed for substantially all of the entire 84 month loan period; this will be exacerbated if you put zero down and include the taxes and fees in the amount borrowed.  Your lender will require you to carry full comprehensive/collision/liability coverage likely with a low maximum deductible.  While the car is underwater it will probably also be a good idea to carry gap insurance because the last thing you want to do is write a check to your lender to shore up the loan to value deficit if the thing is totaled.  These long term car loans (I've seen as high as 96 months) are a bear when it comes to depreciation and related insurance costs. There is more to this decision than the interest calculation.   Obviously, if you had the cash at the front of this decision presumably you'll have the cash later to pay off the loan at your convenience.  But while the loan is outstanding there are costs beyond interest to consider. "One part of the equation that I don't think you are considering is the loss in value of the car.  What will this 30K car be worth in 84 months or even 60 months?  This is dependent upon condition, but probably in the neighborhood of $8 to $10K.   If one is comfortable with that level of financial loss, I doubt they are concerned with the investment value of 27K over the loan of 30K @.9%. I also think it sets a bad precedent.  Many, and I used to be among them, consider a car payment a necessary evil.  Once you have one, it is a difficult habit to break.  Psychologically you feel richer when you drive a paid for car.  Will that advantage of positive thinking lead to higher earnings?  Its possible. The old testament book of proverbs gives many sound words of advice.  And you probably know this but it says:  ""...the borrower is slave to the lender"".  In my own experience, I feel there is a transformation that is beyond physical to being debt free."
A lease payment is composed of an interest portion (borrowed money) and depreciation amount (purchase - residual). The Monthly payment is then Monthly Interest Cost + Monthly Depreciation Cost The Money Factor is used to estimate the amount of interest due in a single month of a lease so you can figure out the monthly payment. If you are borrowing $100,000 then over the entire loan of repayment from a balance of $100,000 to a balance of $0, the average amount you owed was $50,000 (1/2 of principal).   You are repaying this loan monthly (1/12 of a year) and percents are expressed as decimals (1/100). 6 * 1/2 (for principal) * 1/12 (for monthly) * 1/100 (to convert percentage from 6% to .06)  = 6 * 1/2400. 2400 is the product of 3 consecutive conversion (1/2 * 1/12 * 1/100) to convert from an interest rate to a money factor. 6/2400 = Money factor of 0.0025 which can be multiplied against the total amount being borrowed to know what the monthly interest would roughly equal. Some Money Factor info: https://www.alphaleasing.com/resources/articles/MoneyFactor.asp "I'm going to ignore your numbers to avoid spending the time to understand them.  I'm just going to go over the basic moving parts of trading an upside down car against another financed car because I think you're conflating price and value.  I'm also going to ignore taxes, and fees, and depreciation. The car has an acquisition cost (price) then it has a value.  You pay the price to obtain this thing, then in the future it is worth what someone else will pay you. When you finance a car you agree to your $10,000 price, then you call up Mr. Bank and agree to pay 10% per year for 5 years on that $10,000.  Mr. Banker wires over $10,000 and you drive home in your car.   Say in a year you want a different car.  This new car has a price of $20,000, and wouldn't you know it they'll even buy your current car from you.  They'll give you $7,000 to trade in your current car. Your current car has a value of $7,000.  You've made 12 payments of $188.71.  Of those payments about $460 was interest, you now owe about $8,195 to Mr. Banker. The new dealership needs to send payment to Mr. Banker to get the title for your current car.  They'll send the $7,000 they agreed to pay for your car.  Then they'll loan you the additional $1,195 ($8,195 owed on the car minus $7,000 trade in value).   Your loan on the new car will be for $21,195, $20,000 for the new car and $1,195 for the amount you still owed on the old car after the dealership paid you $7,000 for your old car. It doesn't matter what your down-payment was on the old car, it doesn't matter what your payment was before, it doesn't matter what you bought your old car for.  All that matters is how much you owe on it today and how much the buyer (the dealership) is willing to pay you for it. How much of this is ""loss"" is an extremely vague number to derive primarily because your utility of the car has a value.  But it could be argued that the $1,195 added on to your new car loan to pay for the old car is lost." "The question is about the dealer, right?  The dealer isn't providing this financing to you, Alfa is, and they're paying the dealer that same ""On the Road"" price when you finance the purchase.  So the dealer gets the same amount either way. The financing, through Alfa, means your payments go to Alfa.  And they're willing to give you 3,000 towards purchase of the car at the dealer in order to motivate those who can afford payments but not full cash for the car.  They end up selling more cars this way, keeping the factories busy and employees and stockholders happy along the way.  At least, that's how it's supposed to work out." I don't see how anyone could give you a hard-and-fast formula, unless they know where to get some applicable statistics. Because several factors here are not a straight calculation. If you don't replace the tires but keeping driving the car, what is the increased probability that you will get into an accident because of the bald tires? How much will bald tires vs new tires affect the selling price of the car? Presumably the longer you drive the car after getting new tires, the less increase this will give to the market value of the car. What's the formula for that? If you keep the car, what's the probability that it will have other maintenance problems? Etc. That said, it's almost always cheaper to keep your current car than to buy a new one. Even if you have maintenance problems, it would have to be a huge problem to cost more than buying a new car. Suppose you buy a $25,000 car with ... what's a typical new car loan these days? maybe 5 years at 5%? So your payments would be about $470 per month. If you compare spending $1000 for new tires versus paying $470 per month on a new car loan, the tires are cheaper within 3 months. The principle is the same if you buy with cash. To justify buying a new car you have to factor in the value of the pleasure you get from a new car, the peace of mind from having something more reliable, etc, mostly intangibles. "The optimal down payment is 100%. The only way you would do anything else when you have the cash to buy it outright is to invest the remaining money to get a better return.  When you compare investments, you need to take risk into account as well.  When you make loan payments, you are getting a risk free return.  You can't find a risk-free investment that pays as much as your car loan will be.  If you think you can ""game the system"" by taking a 0% loan, then you will end up paying more for the car, since the financing is baked into the sales [price in those cases (there is no such thing as free money).  If you pay cash, you have much more bargaining power.   Buy the car outright (negotiating as hard as you can), start saving what you would have been making as a car payment as an emergency fund, and you'll be ahead of the game. For the inflation hedge - you need to find investments that act as an inflation hedge - taking a loan does not ""hedge"" against inflation since you'll still be paying interest regardless of the inflation rate.  The fact that you'll be paying slightly less interest (in ""real"" terms) does not make it a hedge. To answer the actual question, if your ""reinvestment rate"" (the return you can get from investing the ""borrowed"" cash) is less than the interest rate, then the more you put down, the greater your present value (PV). If your reinvestment rate is less than the interest rate, then the less you put down the better (not including risk).  When you incorporate risk, though, the additional return is probably not worth the risk. So there is no ""optimal"" down payment in between those mathematically - it will depend on how much liquid cash you need (knowing that every dollar that you borrow is costing you interest)." If you're getting 0% on the financing, it's not costing you anything to borrow that money. So its basically free money. If you are comfortable with the monthly payments, consider going with no downpayment at all. Keep that money aside for a rainy day, or invest it somewhere so that you get some return on it. If you need to lower the payments later you can always use that money to pay down part of the loan later (check with the dealer that it is an open loan). If you're not comfortable with the payments at 0 down, put enough down to bring the monthly payment to a level where you are comfortable. When getting a car always start with your bank or credit union. They are very likely to offer better loan rate than the dealer. Because you start there you have a data point so you can tell if the dealer is giving you a good rate.  Having the loan approved before going to the dealer allows you to negotiate the best deal for the purchase price for the car. When you are negotiating price, length of loan, down payment, and trade in it can get very confusing to determine if the deal is a good one. Sometimes you can also get a bigger rebate or discount because to the dealer you are paying cash. The general advice is that a lease for the average consumer is a bad deal. You are paying for the most expensive months, and at the end of the lease you don't have a car. With a loan you keep the car after you are done paying for it. Another reason to avoid the lease. It allows you to purchase a car that is two or three years old. These are the ones that just came off lease. I am not a car dealer, and I have never needed a work visa, but I think their concern is that there is a greater risk of you not being in the country for the entire period of the lease. Instead of going to the dealership and not knowing if you will be able to get a loan or what the interest rate might be, go to a local credit union or bank first, before you go car shopping, and talk to them about what you would need for your loan.  If you can get approval for a loan first, then you will know how much you can spend, and when it comes time for negotiation with the dealer, he won't be able to confuse you by changing the loan terms during the process.  As far as the dealer is concerned, it would be a cash transaction. That having been said, I can't recommend taking a car loan.  I, of course, don't know you or your situation, but there are lots of good reasons for buying a less expensive car and doing what you can to pay cash for it.  Should you choose to go ahead with the loan, I would suggest that you get the shortest loan length that you can afford, and aim to pay it off early. I think you are a little confused. If you have 10.000€ in cash for a car, but you decide instead to invest that money and take out a loan for the car at 2,75% interest, you would have to withdraw/sell 178€ each month from your investment to make your loan payment. If you made exactly 2,75% on your investment, you would be left with 0€ in your investment when the loan was paid off.  If your investment did better than 2,75%, you would come out ahead, and if your investment did worse than 2,75%, you would have lost money on your decision. Having said all that, I don't recommend borrowing money to buy a car, especially if you have that amount of cash set aside for the car.  Here are some of the reasons: Sometimes people feel better about spending large amounts of money if they can pay it off over time, rather than spending it all at once.  They tell themselves that they will come out ahead with their investments, or they will be earning more later, or some other story to make themselves feel better about overspending.  If getting the loan is allowing you to spend more money on a car than you would spend if you were paying cash, then you will not come out ahead by investing; you would be better off to spend a smaller amount of money now. I don't know where you are in the world, but where I come from, you cannot get a guaranteed investment that pays 2,75%.  So there will be risk involved; if the next year is a bad one for your investment, then your investment losses combined with your withdrawals for your car payments could empty your investment before the car is paid off.  Conversely, by skipping the 2,75% loan and paying cash for your car, you have essentially made a guaranteed 2,75% on this money, comparatively speaking. I don't know what the going rate is for car loans where you are, but often car dealers will give you a low loan rate in exchange for a higher sales price.  As a result, you might think that you can easily invest and beat the loan rate, but it is a false comparison because you overpaid for the car. To directly answer your question, the best choice is to pay cash and place the rest on your student loan. This is saving you from paying more interest.  To offer some advise, consider purchasing a cheaper car to place more money towards your student loan debt. This will be the best financial decision in the long-term.  I suspect the reason you are considering financing this vehicle is that the cash payment feels like a lot. Trust your instinct here. This vehicle sounds like large splurge considering your current debt, and your gut is telling you as much. Be patient. Use your liquid funds to get a more affordable vehicle and attack the debt. That is setting yourself up for financial success. I might be missing something, but I always understood that leasing is about managing cash-flow in a business. You have a fixed monthly out-going as opposed to an up-front payment. My accountant (here in Germany) recommended: pay cash, take a loan (often the manufactures offer good rates) or lease - in that order. The leasing company has to raise the cash from somewhere and they don't want to make a loss on the deal. They will probably know better than I how to manage that and will therefore be calculating in the projected resale value at the end of the leasing period. I can't see how an electric car would make any difference here. These people are probably better informed about the resale value of any type of car than I am. My feeling is to buy using a loan from the manufacturer. The rates are often good and I have also got good deals on insurance as a part of that package. Here in Germany the sales tax (VAT) can be immediately claimed back in full when the loan deal is signed. If a shop offers 0% interest for purchase, someone is paying for it. e.g., If you buy a $X item at 0% interest for 12 months, you should be able to negotiate a lower cash price for that purchase. If the store is paying 3% to the lender, then techincally, you should be able to bring the price down by at least 2% to 3% if you pay cash upfront. I'm not sure how it works in other countries or other purchases, but I negotiated my car purchase for the dealer's low interest rate deal, and then re-negotiated with my preapproved loan. Saved a good chunk on that final price! "Lachlan has $600 cash and a car worth $500. That's $1,100. The new car is priced at $21,800. Lachlan needs a loan for $20,700. However, the finance company insists that the buyer must pay a 10% deposit, which is $2,180. Lachlan only has $1,100, so no loan.  The car dealer wants to make a sale, so suggests some tricks. The car dealer could buy Lachlan's old banger for $1,500 instead of $500, and sell the new car for $22,800 instead of $21,800. Doesn't make a difference to the dealer, he gets the same amount of cash. Now Lachlan has $600 cash and $1,500 for his car or $2,100 in total. He needs 10% of $22,800 as deposit which is $2,280. That's not quite there but you see how the principle works. Lachlan is about $200 short. So the dealer adds $1,200 to both car prices. Lachlan has $600 cash and a car ""worth"" $1,700, total $2,300. The new car is sold for $23,000 requiring a $2,300 deposit which works out exactly.  How could we have found the right amount without guessing?  Lachlan had $1,100. The new car costs $21,800. The dealer increases both prices by x dollars. Lachlan has now $1,100 + x deposit. The car now costs $21,800 + x. The deposit should be 10%, so $1,100 + x = 10% of ($21,800 + x) = $2,180 + 0.1 x.  $1,100 + x = $2,180 + 0.1 x : Subtract $1,100 x = $1,080 + 0.1 x : Subtract 0.1 x 0.9 x = $1,080 : Divide by 0.9 x = $1,080 / 0.9 = $1,200 The dealer inflates the cost of the new car and the value of the old car by $1,200. Now that's the theory. In practice I don't know how the finance company feels about this, and if they would be happy if they found out." Which to do is determined by how you like to consume cars. If you don't drive a lot and like to get a new car every 2-3 years, leasing is often the better choice. If you drive a lot or want to keep a car longer than 3 years, you're normally better buying. "The COBRA idea is interesting but I am not sure it will be cheaper than Obamacare - health insurance is just insanely expensive; best for him to discreetly ask HR before leaping.  The ""good"" news is that in two years, he should be eligible for Medicare, which should be a better option. So as Dave said, go with Obamacare or COBRA depending on cost and other factors (doctors in network, etc.) and wait for Medicare to kick in. Also, given that his income is going to go very low really soon, he will be eligible for Obamacare low-income subsidies, which will reduce the bill even further. Further, if you get a Silver or Bronze Obamacare plan, you can stash away $3,300 in a Health Savings Account (HSA) tax free, which should further help with expenses. I am sorry your dad is having to leave his job of 30+ years because of some new jerk. However, I hope that the advice you get here will help you find good options for your dad."