Cash Back vs. Low Interest
Which Offer to Choose: Cash Back or Low Interest?
Auto manufacturers may offer either a cash back rebate or a low interest rate with a car purchase. Very often, these offers are mutually exclusive. A cash back offer reduces the purchase price of the vehicle, lowering the amount you need to finance. A low interest offer reduces the amount of interest you pay over the life of the loan. This calculator helps you determine which of the two is the better financial offer for your situation.
How the Comparison Works
To determine the better deal, the calculator runs two separate loan calculations:
- Cash Back Scenario: The cash back amount is subtracted from the car's price. The loan is then calculated on this lower principal amount using the standard interest rate.
- Low Interest Scenario: The loan is calculated on the car's full price (without the rebate) but uses the special, lower interest rate offered by the dealer.
The calculator then compares the resulting monthly payments. The option with the lower monthly payment is generally the better choice, as it will save you more money over the life of the loan.
Frequently Asked Questions (FAQ)
Does sales tax affect the calculation?
Yes. In most U.S. states, sales tax is calculated on the vehicle price *after* the cash back rebate has been applied. This calculator follows that rule, which can make the cash back option slightly more attractive.
Is the lowest monthly payment always the best choice?
For most people, yes. A lower monthly payment means less money spent overall. However, if the difference is very small, you might consider other factors, such as whether you plan to pay the loan off early (in which case the total interest paid becomes more important).