Compare cash back rebates versus low interest rate financing to determine which auto deal saves you the most money. Make informed decisions on dealer incentives and financing options.
When purchasing a vehicle, dealers often offer two types of incentives: cash back rebates or low interest rate financing. Understanding which option saves you more money requires comparing the total cost of each deal over the entire loan term.
Cash back rebates reduce the amount you need to finance upfront, while low interest rates reduce the amount you pay in interest over time. The best choice depends on the loan amount, interest rates, and loan term.
Lower principal but higher interest rate
Higher principal but lower interest rate
Compare total cost to determine the better deal
| Vehicle Type | Typical Cash Back | Typical Low Rate | Standard Rate |
|---|---|---|---|
| Compact Cars | $1,000 - $2,500 | 1.9% - 3.9% | 6% - 10% |
| Mid-size Sedans | $2,000 - $4,000 | 2.9% - 4.9% | 7% - 11% |
| SUVs | $2,500 - $5,000 | 3.9% - 5.9% | 8% - 12% |
| Luxury Vehicles | $3,000 - $7,500 | 2.9% - 4.9% | 7% - 10% |
| Trucks | $3,000 - $6,000 | 3.9% - 5.9% | 8% - 12% |
| Example | Vehicle Price | Cash Back Option | Low Rate Option | Winner |
|---|---|---|---|---|
| Compact Car (60 months) | $20,000 | $2,000 back at 8% | 0% at promotional rate | 0% financing |
| SUV (48 months) | $35,000 | $4,000 back at 9% | 3.9% promotional rate | Cash back |
| Truck (72 months) | $45,000 | $5,000 back at 10% | 4.9% promotional rate | Low rate |
Cash back available regardless of credit score
Interest paid may be deductible for business use
Consider potential returns vs. interest savings
Get Both Offers: Always ask for pricing on both incentive options.
Separate Negotiations: Negotiate vehicle price first, then discuss financing.
Shop Your Rate: Get pre-approved from banks/credit unions for comparison.
Consider Stacking: Some dealers allow combining smaller rebates with promotional rates.
Timing Matters: End of model year, quarter, or month often brings better incentives.
| Lender Type | Advantages | Disadvantages | Best For |
|---|---|---|---|
| Manufacturer Finance (Captive) | Promotional rates, incentives | Limited to specific models | New vehicles with incentives |
| Banks | Competitive rates, flexible terms | Stricter credit requirements | Good credit borrowers |
| Credit Unions | Low rates, member benefits | Membership required | Members with good credit |
| Online Lenders | Quick approval, convenience | Limited personal service | Tech-savvy borrowers |
End of Model Year: Manufacturers may offer both incentives simultaneously.
Slow-Selling Models: Higher incentives available on less popular vehicles.
New Model Introductions: Previous year models get enhanced incentives.
Regional Incentives: Some rebates vary by geographic location.
Loyalty Programs: Additional incentives for existing customers.
Calculate Total Cost: Include all payments, fees, and interest over the loan term.
Consider Cash Flow: Factor in your monthly budget and payment preferences.
Account for Opportunity Cost: Could cash back be invested for higher returns?
Evaluate Loan Terms: Shorter terms generally favor cash back, longer terms favor low rates.