When you set out to buy your next car you will hear lots of auto manufacturers advertising many different promotions like low interest rates and huge cash rebates but the catch usually is…. You can’t have both. You will have a decision on which option to take – the money or a low promotional interest rate.
Cash rebates are a pre-tax discount a manufacturer will give you in lieu of a promotional finance rate. A promotional interest rate is a lower rate than the standard rate of interest the manufacturer or bank will lend to you at. I’ll help you understand which one is better for you and analyze this with an example I show people on the daily when we have selected the right car and are now picking our purchase options.. I’ll use the new 2014 Honda CR-V EX AWD. The promotional interest is 1.99% APR and the standard is 4.99% APR. Honda offers a $2500 cash rebate in lieu of financing. I have worked out two samples over two different terms applying the current cash rebates and available promotional interest rate.
60 months @ 1.99% =$ 658.25
60 months @ 4.99% –$2500 rebate = $655.88
84 months @ 1.99% = $479.57
84 months @ 4.99% –$2500 rebate = $491.34
Most cash rebates equal the cost to buy-down the interest rate on the 60 month term, as seen in the example above by the payments being only a few dollars off. But in this case the lower payment may not be the best choice. Below are the reasons why each option is the best for you.
When you should take the cash rebate vs. When you should take the rate
Take the cash when:
Take the promotional interest rate when:
There are reasons to take each promotion over the other. But if the payment is the same or close, like in the 60 months options displayed above, take the cash. This will give you flexibility if you want to sell/trade your vehicle early by owing a lower amount. And as someone who loves cars and switches often, I always take the cash.
If you want to see which option you should take on your next car, shoot me a message. I’d love to help.