When purchasing a new vehicle, automotive manufacturers frequently offer promotional incentives to close the sale. Buyers are typically forced to choose between two mutually exclusive offers: a lump sum cash rebate (which lowers the purchase price) OR an ultra-low promotional interest rate (often 0% APR). Choosing the right option mathematically depends on the loan term, the standard interest rate you qualify for independently, and the size of the rebate.
The Decision Rule
Take the rebate if the total interest paid on a standard bank loan is less than the rebate amount. Take the low APR if the total interest saved over the life of the loan is greater than the upfront cash rebate.
How to Use This Calculator
- Enter the negotiated purchase price of the vehicle.
- Input the cash back rebate amount offered by the dealer.
- Input the promotional low-interest APR (e.g., 0% or 1.9%).
- Input your standard bank APR (what you would pay if you took the cash rebate).
- Click Calculate to reveal which option mathematically saves you more money over the loan term.
Frequently Asked Questions (FAQ)
Why do dealers make you choose between cash or low interest?
Both incentives are subsidized by the automaker's "captive" finance company. The manufacturer allocates a specific marketing budget per vehicle; offering both simultaneously would eliminate their profit margin on the sale.
Can I take the cash back and refinance the car later?
Yes, taking the cash back lowers your principal balance immediately. If you accept a standard interest rate from the dealer to get the rebate, you can often refinance the loan a few months later with a credit union to get a lower rate, capturing the best of both worlds.