Auto Loans: Low Interest Rate Or Rebate

As a promotional tool, many auto loans come with enticing choices. Most notably, choices of a cash rebate upfront from the manufacturer or a lower interest rate over the lifetime of the loan are the most common offers.

Certain factors come into play in determining which is the better deal. For example, the amount of money to be financed will determine the amount of interest that is spent over the lifetime of the loan. The actual numerical difference of the interest rate offered with the rebate and the interest rate offered without the rebate will also come into play when calculating the benefit of one deal over the other.

Special deals, however, should never be the deciding factor in the purchase of a vehicle. The customer needs to be happy with the make and model of the car in order to make it a worthwhile deal. Since most people keep their vehicles at least for the lifetime of the auto loan, three to five years is a long time to have possession of a vehicle that does not meet your needs, expectations, or personal satisfaction.



That being said, the customer needs to take into account many variables in deciding which of the tantalizing carrots to accept. Probably the most effective way to compare options and make the wisest decision, when it comes to an auto loan, is to consider the APR. The overall cost of a vehicle is calculated using the APR, or annual percentage rate. The higher the APR, the higher the overall cost of the loan.

Trying to decide which of the options will save you the most money is tedious at best. Both types of offers may look appealing- instant cash rebate or lower interest rate. The good news is that online calculators are available to consumers to do the math for them. The borrower simply needs to plug in the requested information and the calculator will determine which is the better option. Many online sites geared to finances and loans offer these calculators.

Determining the difference between the amounts of money that will be spent towards interest over the lifetime of each loan with each offered interest rate is the first calculation. Discovering the difference between the two rates offered, that is, the interest rate with cash rebate and the interest rate without cash rebate, is the next step. Finding the difference between the amount of the cash rebate and the amount of the savings in interest with the lower interest rate offered without the rebate is the last step. Whichever is the greater amount is obviously the better deal.

An important fact to consider in the decision making process is that manufacturer's rebates are available to anyone and everyone. Lower interest rates, on the other hand, may only be available to those with a higher credit score. In fact, doing your homework first and shopping around for the best financing deal possible is the wisest choice.

Individuals with excellent credit histories can most likely acquire lower interest rates somewhere else. Quite often in fact, lenders, especially online lenders, are able to approve someone for the total amount of a loan before they have even shopped for a car. In this manner, the car shopper can concentrate on what is important- the vehicle itself.

People, who can take advantage of the manufacturer's rebate and acquire an auto loan elsewhere with a better rate, reap the benefits from both worlds. Even if the interest rate at the other lender is the same exact amount, the individual is still making out better since he is able to receive the cash rebate and the lowest interest rate offered.

Therefore, the first choice that a consumer needs to make is whether they will acquire their financing form a car dealer or from an outside source. The next choice is to decide which of the many offers to select. Typically, car loans are financed in terms of three, four, or five years. After that, the consumer can crunch the numbers to determine whether a cash rebate or lower interest rate is more profitable.

Occasionally, a different type of offer arises to tempt the unsuspecting borrower. An auto loan might come with an offer to forego interest payments during the first year of a loan. Unfortunately, the loan might also require an additional year to pay it off, making it a five-year loan. Additionally, the loan payments will invariably be a higher amount on order to make up the difference.

Anyone, who is considering a car loan, needs to read the entire offer, including the small print. Car dealers are in the business to make money. Therefore, a dealer might raise the actual interest rate of the auto loan that is being offered by the bank or lender.