US boomers should probably stop paying cash for their cars. Why a big 'financial flex' costs you thousands of dollars

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.

Jeff Bezos backs a platform that lets anyone invest in rental homes for as little as $100 — 6 ways to build wealth like a landlord without actually being one

JP Morgan sees gold hitting $6,000/oz before 2027 — and a gold IRA lets you hold the physical metal while deferring the tax bill. Get your free guide from Priority Gold

The tax breaks in Trump's 'big beautiful bill' expire after 2028 — and experts say most people won't act in time. What to do before the window closes

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.

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.

Read More: Millionaires under 43 hold only 25% of their wealth in stocks. Here's where their money is actually going

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.

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.