Rebate vs Low Interest Financing
Should you take the cash rebate or the low-interest financing? Compare both options side by side to find which saves you more money.
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Rebate vs Low Interest: How to Decide
Car manufacturers often offer two competing incentives: a cash rebate (which reduces the purchase price) or special low-interest financing (typically 0-2.9% APR). You usually can't get both, so the question is which saves you more money overall.
When the Rebate Wins
The rebate is usually better when the rebate amount is large relative to the loan, the loan term is short (36-48 months), or the difference between the dealer's low rate and your bank's rate is small.
When Low Interest Wins
Low interest financing tends to win on longer loan terms (60-72 months), when the spread between the low rate and your bank rate is large (e.g., 0% vs 7%), or when the rebate amount is relatively small.
Understanding the Rebate vs Low-Interest Decision
Manufacturers often offer two incentives that can't be combined: a cash rebate (e.g., $3,000 off the price) or special low-rate financing (e.g., 0.9% APR). The right choice depends on the rebate amount, the special rate, the rate you'd get otherwise, the loan term, and the vehicle price.
When the Rebate Usually Wins
Cash rebates tend to be better when you have excellent credit and can get a competitive rate from a bank or credit union anyway, the rebate amount is large relative to the vehicle price, and you plan a shorter loan term. The shorter the term, the less interest savings matter.
When Low-Interest Usually Wins
Special financing tends to win when you'd otherwise have a high interest rate, the loan term is long (60-72 months where interest compounds significantly), and the rebate amount is modest relative to total interest savings.