Cash Back or Low Interest Calculator

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. Use the calculator to find out which of the two is the better offer. Tax and fee procedures apply to car purchases within the US only. The calculator can still be used in other countries, but please adjust the inputs accordingly. For more information about or to do calculations involving auto loans instead, please use the Auto Loan Calculator.

Cash Back Offer
Cash Back Amount
Interest Rate (High)
 
Low Interest Rate Offer
Interest Rate (Low)
 
Other Information
Auto Price
Loan Termmonths
Down Payment
Trade-in Value
Your State
Sales Tax
Title, Registration
and Other Fees

Results

The Low Interest Rate Offer is Better!

The low rate will save you $2,253 in interest, which is larger than the cash back of $1,000.

With Cash Back Offer
Total Loan Amount$19,000.00
Sale Tax$1,750.00
Upfront Payment$7,050.00
Monthly Pay$354.22
Total of 60 Loan Payments$21,253.04
Total Loan Interest$2,253.04
Total Cost (price, interest, tax, fees)$28,303.04
With Low Interest Rate Offer
Total Loan Amount$20,000.00
Sale Tax$1,750.00
Upfront Payment$7,050.00
Monthly Pay$333.33
Total of 60 Loan Payments$20,000.00
Total Loan Interest$0.00
Total Cost (price, interest, tax, fees)$27,050.00

RelatedAuto Loan Calculator | Auto Lease Calculator


Cash Rebate

A vehicle cash rebate is an additional deduction on the purchase price of a car. The amounts generally range between $500 to $3,000. In some cases, the rebate is large enough to cover the entire down payment.

Aside from vehicle rebates available to any potential buyer, there can be special rebates such as those for people who served in the military, current students, or first-time buyers. It is also not uncommon for rebates to be given to returning customers trading in a same make vehicle from previous years, or switching from a competitor's model, which is sometimes called a conquest incentive. Some dealers may require the financing of the auto loan for a car purchase to be done through a captive lender in order to qualify for a rebate.

Several states in the U.S. view cash rebates as payments from auto manufacturers. For example, the purchase of a vehicle at $30,000 with a cash rebate of $2,000 will have sales tax calculated based on $30,000, not $28,000. Luckily, many states do not tax cash rebates; these states are Alaska, Arizona, Delaware, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Hampshire, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, Utah, Vermont, and Wyoming.

Rebates may be distributed in several different ways. An instant rebate on a car is an immediate deduction off the negotiated price of the car. While it may be the most ideal form because of its instantaneous application, some are in the form of a mail-in rebate from the manufacturer; they arrive as a check or prepaid credit card four to eight weeks later.

Buyers who plan on paying cash entirely up front will only benefit from the cash rebate option. Because there is no financing involved in the purchase, it doesn't matter whether the interest rate is 0% or 10%.

Almost all vehicle cash rebates originate from car manufacturers rather than the car dealers because their goal is to further incentivize potential buyers to buy cars usually to get rid of old inventory, or to jump start sales for vehicles that aren't selling well. Rebates should not be confused with a dealer holdback, which is a portion of a vehicle's sales price (usually 2 to 3 percent of MSRP) that a dealer is allowed to "hold back" from manufacturers on a quarterly basis.

Low Interest Financing

When car buyers receive more favorable interest rates than usual on their car purchases (direct from the dealer, not as a preapproval from an external source such as a bank), this is called low interest financing. A car loan at a lower rate will require the car buyer to pay less in interest during the life of the loan. In some cases, the low rate only applies to a brief introductory period (such as for the first 12 months) as opposed to the entirety of the loan. The calculator will not work for car loans where the low financing only applies to a limited period. Similar to a cash rebate, low interest financing reduces the total cost to own the car in the end. The lower a given rate, the more likely it is that it will reduce the cost of a car purchase more than a cash rebate. While cash rebates tend to be more widely available to everyone, low interest financing is generally reserved for a select few. Normally, these car buyers (what car ads often refer to as "well-qualified buyers") must have excellent credit scores to qualify. In some cases, they must also make larger down payments to qualify. This means that buyers who have negative marks in their credit history, such as missed or late payments, may not qualify for low interest financing.

Which One to Choose?

Both options reduce the total cost to own a car in the end, just by different methods. Generally, it comes down to which amount is higher: the rebate amount or the total interest saved from the low introductory rate. Low introductory rates are very possible for car buyers with great credit history, but many times, vehicle rebates can be just as good from a financial standpoint. The calculator can help determine which option will result in higher savings.

Considerations

There is a strategy sometimes employed by salesmen called a bait-and-switch. Initially, customers are baited through advertisements of products at low prices or rates, only for them to learn that the actual deal is not all that was initially promised, or is gone. An example of a bait-and-switch is the advertisement in the newspaper for a sack of potatoes at a grocery store that sells for $2, but in actuality the grocery store has "run out" of that deal and offers customers a competing brand for $5 instead. The bait-and-switch strategy is commonly used by car salesmen. As one example, a TV commercial may advertise 0% financing at a local car dealer, but when potential customers visit it in-person, they are apologetically informed that they don't qualify for 0%. The customer may be so keen on the car at this point that they settle for a higher rate anyway and the dealer's bait-and-switch has worked as intended. Though it is illegal in most countries as a form of false advertisement, it is still practiced.

Not only for new cars, but for anything being sold, a big discount can sometimes be precipitated by a hike in the price of a good, generally rendering it only marginally discounted. For a large purchase like a new car, seeing thousands deducted from the final purchase price just might push hesitant buyers over the fence. Car buyers should be wary that the rebates they receive on their car purchases may not actually be once-in-a-lifetime deals. Although car buyers who opt for rebates do end up getting discounts, they are generally less than what is advertised or implied. There is a certain threshold where a sold car ends up becoming a loss to the dealer, and only in extremely rare cases will this occur.