The base loan that sets the monthly budget
To keep the comparison fair, we set the monthly budget using a fast 3-year loan example. We assume a car price of €35,000, a €10,000 down payment, and an example loan rate of 6.19% per year.
| Loan input | Value |
|---|---|
| Car price | €35,000 |
| Down payment | €10,000 |
| Loan amount | €25,000 |
| Interest rate (example) | 6.19% per year |
| Payoff time | 3 years (36 months) |
| Monthly payment | €763 (calculated) |
| Total interest paid (3 years) | €2,457 (calculated) |
That €763 per month becomes the fair comparison budget. In every other plan, we save exactly €763 per month instead.
Assumptions we make
- Depreciation: 5% per year for both cars (simple, conservative).
- "Bonds" return: 2.77% per year as a low-risk proxy.
- Fund returns of 7% and 10% are what-if assumptions (not guaranteed).
- Monthly saving and monthly compounding.
- We keep saving the €763 monthly budget for the full 36 months, even after upgrading.
- We ignore fees, taxes, insurance, repairs, and fuel.
What we own after 3 years
"Real money after 3 years" here means: car value + savings account value - remaining loan. In the loan plan, the loan balance is zero by month 36.
| Plan (same €763/month budget) | When we get the €35k car | What we own after 3 years |
|---|---|---|
| Buy €35k now (loan paid in 3 years) | Today | ~€30,000 (3-year-old car) |
| Buy €10k now, save in bonds (2.77%) | Month 34 (2.8 years) | ~€36,800 (almost-new car + ~€2,100 cash) |
| Buy €10k now, save in a 7% fund | Month 32 (2.7 years) | ~€37,900 (almost-new car + ~€3,500 cash) |
| Buy €10k now, save in a 10% fund | Month 31 (2.6 years) | ~€38,600 (almost-new car + ~€4,400 cash) |
So the save-first options are ahead after 3 years by roughly:
- Bonds: +€6,800
- 7% fund: +€7,900
- 10% fund: +€8,600
Why the bond and fund results are closer than expected
Higher returns help, but they also make us upgrade earlier. Upgrading earlier means the €35k car starts depreciating earlier, which eats part of the gain. That is why, over just 3 years, the gap between 2.8% and 7% is smaller than people expect.
The simple takeaway
A 3-year loan mostly buys one thing: 3 full years in the nicer car. Saving first mostly buys one thing: a newer car (and a little cash left) at the 3-year mark, but we spend most of the period driving the cheaper car.
Example only. Exact outcomes depend on the car, loan terms, depreciation, and market returns.