The Cash Back or Low Interest Calculator shows which car dealer offer is better: a cash rebate with a normal interest rate, or a lower interest rate without the rebate.
The low interest rate offer is better, saving $2,092.06.
| Cash back / Low interest | |
| Total loan amount | $39,000.00 / $40,000.00 |
| Sales tax | $3,500.00 / $3,500.00 |
| Upfront payment | $15,500.00 / $15,500.00 |
| Monthly pay | $735.98 / $701.11 |
| Total of 60 loan payments | $44,158.69 / $42,066.62 |
| Total loan interest | $5,158.69 / $2,066.62 |
| Total cost (price, interest, tax, fees) | $59,658.69 / $57,566.62 |
Car makers often let buyers choose between a cash rebate (for example $1,000 off) and special low-rate financing (for example 2% instead of 5%). You usually cannot have both. The rebate lowers the amount you borrow; the low rate lowers the interest on a larger loan. Which saves more depends on the size of the rebate, the two rates and the loan length.
For each offer the calculator works out the loan amount (price minus rebate, down payment and trade-in), adds sales tax and fees either to the loan or to the upfront payment, calculates the monthly payment, and adds everything up to a total cost.
Worked example (defaults): a $50,000 car, $10,000 down, 60 months. The cash back loan of $39,000 at 5% costs $735.98 a month; the $40,000 loan at 2% costs $701.11. Over five years the low-rate offer saves about $2,100, so it is better here.
Low-rate offers tend to win on long loans and large balances. Rebates tend to win on short loans, when you pay a large part in cash, or when you can get a competitive rate from your own bank or credit union and take the rebate as well. Always get a pre-approved loan quote before visiting the dealer.
Is the rebate taxed? In most states sales tax is charged on the price before the rebate.
Can I negotiate the price as well? Yes; incentives come from the manufacturer, the price from the dealer.
What credit score do special rates need? Usually excellent credit, often 720 or higher.