Car Rebate vs. Car Loan

In the market for a new car, and overwhelmed by the hype regarding rebates and low interest financing? New car buyers have a multitude of options in todays marketplace. Q: What kinds of options are out there? ·Auto manufacturers are constantly looking for ways to get things moving, particularly in the months leading up to the new "car year" offerings ·New and certified pre-owned vehicles may have special financing options ·First 6 months payments waived is an option thats out there ·Discounts for college graduates, veterans, employees of certain companies ·Most popular - low interest rate financing and cash rebates Q: Low rate financing or rebate - which is the better deal? ·It depends. Not everyone is entitled to special low rate financing, but usually everyone is entitled to the manufacturer rebate. ·Low rate financing is almost always only for those with excellent credit, and offers limited terms ·If you have good credit, are a repeat buyer and/or have a trade in, youll most likely qualify for low rate financing ·If you are a first time buyer, have dinged credit and/or a limited down payment, the cash rebate is the best way to go Q: If I qualify for both, which should I choose? ·Most often people will choose cash, but there is an easy calculation to perform which helps you make the decision ·Need to act fast though, these offers come and go quickly Heres a quick comparison, using a hypothetical example: Option 1 - $20,000 loan at 2.9% APR for 60 months or Option 2 - $20,000 loan at 6.9% for 60 months (with $1,000 rebate in your pocket) Step 1 - multiply half the loan amount by the difference between the two financing options ($10,000 x 4% = $400) Step 2 - multiply that $400 by the number of years in the loan ($400 X 5 = $2,000) Answer? Option 1 in this scenario. Youll save $1,000 more than the rebate. Q: Seems like an easy choice! Are there other factors to consider? ·Do your homework - $1,000 over the life of a 60 month loan is $200 ·Check with your financial institution before you visit with dealer ·Homeowners may be able to use home equity and realize tax savings ·Keep in mind how long you plan to keep the car - 24 to 36 months is average ·Check the Internet for manufacturers deals and loan calculators.