Cash Back vs Low Interest: worked example
| Vehicle price | $35,000 |
|---|---|
| Cash-back rebate | $2,500 |
| Loan term | 5.0 years |
| Your own loan rate (with cash back) | 6.5% |
| Dealer's low promotional rate | 1.9% |
| Advantage of taking the cash back | -$1,437 |
| Monthly payment with cash back | $636 |
| Monthly payment at the low rate | $612 |
Cash Back vs Low Interest: changing Vehicle price
| Vehicle price | Advantage of taking the cash back | Monthly payment with cash back | Monthly payment at the low rate |
|---|---|---|---|
| $28,000 | -$563 | $499 | $490 |
| $31,500 | -$1,000 | $567 | $551 |
| $35,000 (example) | -$1,437 | $636 | $612 |
| $38,500 | -$1,875 | $704 | $673 |
| $42,000 | -$2,312 | $773 | $734 |
Cash Back vs Low Interest: compare input ranges
| Input | Tested from | To | Advantage of taking the cash back: low input | Advantage of taking the cash back: high input | Swing |
|---|---|---|---|---|---|
| Your own loan rate (with cash back) | 5.5% | 7.5% | -$531 | -$2,358 | $1,827 (127%) |
| Loan term | 4.0 years | 6.0 years | -$621 | -$2,275 | $1,654 (115%) |
| Vehicle price | $31,500 | $38,500 | -$1,000 | -$1,875 | $874 (61%) |
| Cash-back rebate | $2,250 | $2,750 | -$1,731 | -$1,144 | $587 (41%) |
| Dealer's low promotional rate | 1.6% | 2.1% | -$1,666 | -$1,208 | $459 (32%) |
Cash Back vs Low Interest: individual input comparisons
| Input | Value | Advantage of taking the cash back | Monthly payment with cash back | Monthly payment at the low rate |
|---|---|---|---|---|
| Vehicle price | $28,000 | -$563 | $499 | $490 |
| $31,500 | -$1,000 | $567 | $551 | |
| $35,000 | -$1,437 | $636 | $612 | |
| $38,500 | -$1,875 | $704 | $673 | |
| $42,000 | -$2,312 | $773 | $734 | |
| Cash-back rebate | $2,000 | -$2,024 | $646 | $612 |
| $2,250 | -$1,731 | $641 | $612 | |
| $2,500 | -$1,437 | $636 | $612 | |
| $2,750 | -$1,144 | $631 | $612 | |
| $3,000 | -$851 | $626 | $612 | |
| Loan term | 3.0 years | $175 | $996 | $1,001 |
| 4.0 years | -$621 | $771 | $758 | |
| 5.0 years | -$1,437 | $636 | $612 | |
| 6.0 years | -$2,275 | $546 | $515 | |
| 7.0 years | -$3,132 | $483 | $445 | |
| Your own loan rate (with cash back) | 4.5% | $363 | $606 | $612 |
| 5.5% | -$531 | $621 | $612 | |
| 6.5% | -$1,437 | $636 | $612 | |
| 7.5% | -$2,358 | $651 | $612 | |
| 8.5% | -$3,291 | $667 | $612 | |
| Dealer's low promotional rate | 1.4% | -$1,894 | $636 | $604 |
| 1.6% | -$1,666 | $636 | $608 | |
| 1.9% | -$1,437 | $636 | $612 | |
| 2.1% | -$1,208 | $636 | $616 | |
| 2.4% | -$977 | $636 | $620 |
Cash Back vs Low Interest: combined input changes
| Vehicle price / Cash-back rebate | $2,000 | $2,500 | $3,000 |
|---|---|---|---|
| $28,000 | -$1,150 | -$563 | $24 |
| $31,500 | -$1,587 | -$1,000 | -$413 |
| $35,000 | -$2,024 | -$1,437 | -$851 |
| $38,500 | -$2,462 | -$1,875 | -$1,288 |
| $42,000 | -$2,899 | -$2,312 | -$1,725 |
Cash Back vs Low Interest: which assumptions move the result?
Cash Back vs Low Interest: values and definitions
| Quantity and definition | Value used |
|---|---|
| Vehicle price | $35,000 |
| Cash-back rebate | $2,500 |
| Loan term | 5.0 years |
| Your own loan rate (with cash back) — The rate a bank or credit union offers you if you take the rebate. | 6.5% |
| Dealer's low promotional rate — The rate the dealer offers if you give up the rebate. | 1.9% |
| Advantage of taking the cash back | -$1,437 |
| Monthly payment with cash back | $636 |
| Monthly payment at the low rate | $612 |
The promotional rate usually applies only to shorter terms and top credit tiers, and the rebate may have conditions. Taxes may be calculated on the price before the rebate in some states. The choice ignores other differences such as trade-in treatment and fees.
Rates and offers change monthly, so recheck when you buy.
Cash Back vs Low Interest: formula
Vehicle price and loan term are the same for both options. The cash-back rebate is the manufacturer's rebate you receive if you take the standard financing or your own loan, your own loan rate is what a bank or credit union would charge, and the dealer's low promotional rate is the special rate that comes with declining the rebate. Compare the offers for the same trim and model, and check whether the low rate requires excellent credit.
Common error: Comparing the rebate with the interest saved and ignoring the fact that the rebate also shrinks the loan. Both effects run through the payment, so compare the two total costs side by side.
Auto Finance calculators: Trip Cost Calculator, Auto Lease Calculator, Lease vs. Buy Calculator, Auto Depreciation Calculator, Fuel Cost Calculator, Vehicle Total Cost of Ownership Calculator.
A dealer who offers either a rebate or a low rate is giving you one discount in two forms, and the cheaper form depends on your own loan rate. On a $35,000 car over five years, a $2,500 rebate with a 6.5 percent loan costs about $38,150 in payments. The 1.9 percent dealer rate on the full price costs about $36,700.
Here the low rate wins by roughly $1,440, even though the rebate looks like cash in hand.
Get a real loan quote from your own bank or credit union before you decide. The rate you would pay is the number that flips the answer.
Compute the loan on the auto loan calculator, and compare offers with the loan comparison page. The car sales tax and fees calculator adds taxes, and the auto affordability page checks the payment. Get preapproved by a credit union before you visit the dealer so you know your own rate.
Is cash back or low-interest financing better?
It depends on the size of the rebate and the rate difference. A large rebate with a low own-loan rate often wins, while a very low promotional rate on a big loan can win.
Can I get both the rebate and the low rate?
Rarely. Manufacturers usually make them alternatives, so you choose one, although a few offers combine them.
Does the rebate reduce sales tax?
In some states the rebate lowers the taxable price, and in others tax is charged on the price before the rebate, so check your state.