Buy a new auto with cash or a car loan?

Tara Baukus MelloQuestionDear Driving for Dollars,
I inherited some mutual funds that are luckily earning good money. I want to buy a car with good gas mileage since gas prices are predicted to keep rising. Should I cash in some of those funds and pay cash for a new car, or should I take out a small-interest car loan?
-- Confused

AnswerDear Confused,
There are many ways to approach your decision, but I would suggest you look at the average interest these mutual funds are earning and compare that to the interest rate you would qualify for if you were to get a new car loan. If the mutual funds are likely to earn you more than the interest rate you would pay, it makes more sense to get the car loan and keep the mutual funds intact.

You also indicate that you are interested in buying a new car because of a predicted rise in gas prices. If that is your only reason, then you may want to rethink your purchase entirely. According to the federal Energy Information Administration, there's only about a 35 percent chance that regular gasoline could reach $3.50 per gallon on national average this summer -- and only a 10 percent chance it could reach $4 on average. The current national average is $3.14 per gallon of regular gasoline. Instead, you may want to focus on finding cheaper gas or take gas-saving measures offered in this Bankrate story.

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If you have a car question, e-mail it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

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