How to Choose Between Cash Back and a Low APR on a New Car

Couple Finalizing a New Car Purchase
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Are you looking for a great deal on a new car? Amazing deals are still available on new vehicles giving buyers the option between a hefty cash back bonus or a 0% APR interest rate. The problem is that many buyers do not do the math to calculate the best option to reduce their overall cost. For a long time a 0% APR interest rate on a new car was absolutely unheard of, so when that offer is available many people jump for it.

The problem is, it might be costing them thousands of dollars!

Example: 20k + $1200 (6% sales tax) = $21,200

  • $3500 Cash Back Option with a 2.99% Interest Rate Through a Credit Union = Total Loan Amount of 17,700 and a monthly payment of $318
  • 0% Interest Rate = Total Loan Amount of $21,200 and a monthly payment of $353

In this example, the $3500 cash back would save the buyer $35 a month over 60 months totaling $2100. Lower the cash back option to $2500 and the savings would still be $17 a month totaling $1020 over the life of the loan verses a 0% interest rate.

There are a lot of variables to consider and this is just one example of how the numbers could add up. A smart buyer needs to know what interest rates are available through different sources. Check with your local credit union before even considering finalizing a deal. Luckily once you know the interest rates, car loan calculators are available which can quickly tell you which option is better Cash Back or 0% interest.

It does take a very good credit score in order to qualify for the best car interest rate. A lot of times, buyers will not qualify and the low interest rate provided by the manufacturer would be the best choice. If you really want to save money on your new car purchase, you are going to have to do the math.

A great calculator is provided free of charge by Edmunds.com. Their calculator will specifically help you calculate cash back and incentive offers informing you immediately of the best choice.

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