Cash Rebate vs Low APR Calculator

How it works

Option A: loan = price − down − rebate at your bank’s rate · Option B: loan = price − down at the promotional rate · payment = L × i ÷ (1 − (1 + i)⁻ⁿ) · total = down + payment × n · break-even rebate = L_B − PV of the promotional payment at the bank’s rate

Car makers often make you choose: a cash rebate or subsidized financing, not both. The rebate lowers the amount you borrow; the low APR lowers the cost of borrowing a larger amount. Which wins depends on the size of the rebate, the gap between the two rates and the term. The break-even rebate is the bonus at which the two options cost exactly the same — any rebate above it beats the promotional financing. Get a pre-approved bank or credit-union rate before visiting the dealer so you know your real alternative.

Worked example

A 35,000 car with 5,000 down over 60 months: taking the 3,000 rebate and a 6.9% bank loan on 27,000 costs 533.36 a month, 37,001.56 in total; skipping the rebate for 0.9% APR on 30,000 costs 511.52 a month, 35,691.31 in total. The low APR wins by 1,310.26; the rebate would need to be at least 4,105.47 to beat it.

Sources: CFPB — Auto loans

Frequently asked questions