How the comparison works
Overpaying earns a return equal to the loan rate, guaranteed. Investing earns the market return, which is not guaranteed.
The better option is the one with the larger gain over the same period, before tax and risk are considered.
Worked example
On £15,000 at 7.5% with 48 months left, paying £100 extra saves £593.92 of interest and clears the loan 11 months sooner.
Investing £100 a month at 6% grows by £609.78 over the same period, £15.86 more than the interest saved.
Risk and liquidity
Overpaying is risk-free but locks the money into the car. Investing keeps it accessible but can fall in value.
A middle path is to overpay while rates are high and invest when the expected return clearly exceeds the loan rate.
Inputs for the car loan vs investment calculator
Loan balance
What you still owe.
Loan interest rate
The yearly rate on the loan.
Months left
How many payments remain.
Extra amount each month
The money you could either overpay or invest.
Investment return
The yearly return you expect on the invested money.
CALCULATOR QUESTIONS
Car loan vs investment calculator questions
Which is better in the example?
Investing, by £15.86, but only because the assumed return beats the loan rate.
Is overpaying risk-free?
Yes, the interest saved is certain. Investment returns are not.
What about tax?
Investment gains may be taxed, which can tip the balance towards overpaying.
Can I do both?
Yes. Splitting the spare cash reduces risk on both sides.