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0% Financing vs. Cash Back Rebates |
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No matter what options are available to you, it is important to read and evaluate the fine print of any and all offers. We have included a table below which can help you make the decision of whether a rebate or 0% financing is best for you.
Cash Rebates:
If you elect to take the cash back through a dealer's rebate program, you may forego the low interest-rate loan, but in the end you will receive a lump sum in the window of $1500 or $2000 (or more!). Although it could seem like a no-brainer (who doesn't like cash?!), it really could be a smart move, because the rebate you receive can be used towards the down payment on the vehicle. By using the cash towards the total balance/price of the car, you are then reducing the amount you have to finance, and therefore the amount of interest you are paying in the long run.
0% Financing:
Having a rate of 0% may sound like a sweet deal, but unfortunately there are limitations on both who is eligible and what kind of vehicle is eligible. Requirements can range from needing close to perfect credit, a large down payment for the new vehicle, or a short term on the loan, which all could lead to very high monthly payments.
To evaluate the table: circle the amount where the credit union financing (horizontal row) matches up with dealer rate (vertical column). Determine how many thousands of dollars you'll need to borrow (i.e.13.4 for $13,400 or 17 for $17,000), multiplying this figure by the circled amount. The answer is what you would save by using the dealer's rate; if this amount is less the offered rebate, you are better off taking the rebate and applying it to your loan financed through the Credit Union. By doing so, you are decreasing the amount of money you actually are borrowing and therefore lowering your monthly payment.
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0% |
1% |
2% |
3% |
4% |
5% |
| 5.0% |
$73 |
$59 |
$44 |
$30 |
$15 |
--- |
| 5.5% |
$80 |
$66 |
$51 |
$37 |
$22 |
$8 |
| 6.0% |
$87 |
$73 |
$59 |
$44 |
$30 |
$15 |
| 6.5% |
$94 |
$80 |
$66 |
$51 |
$37 |
$22 |
| 7.0% |
$100 |
$86 |
$72 |
$58 |
$44 |
$29 |
| 7.5% |
$107 |
$93 |
$79 |
$65 |
$51 |
$37 |
| 8.0% |
$114 |
$100 |
$86 |
$72 |
$58 |
$44 |
| 8.5% |
$120 |
$106 |
$93 |
$79 |
$65 |
$51 |
| 9.0% |
$127 |
$113 |
$99 |
$86 |
$72 |
$58 |
| 9.5% |
$133 |
$119 |
$106 |
$92 |
$78 |
$64 |
| 10.0% |
$139 |
$126 |
$112 |
$99 |
$85 |
$71 |
Sample: The price of your new vehicle is $17,000; you want to compare a 0% finance offering with a dealer, against a 6.0% finance offering with your Credit Union. If you elect to finance the car through your Credit Union, you would receive a $2000 cash rebate from the dealer (therefore reducing the amount you would finance to $15,000). Take the amount of $87 (the matched number between columns) and multiply it by 17 (the thousands of dollars for the vehicle). This would total $1479, which is less than the rebate being offered. Therefore, by taking the rebate, as well as the financing through the Credit Union, your monthly payment will be lower.
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