Cash Back vs. Low Interest Rate Calculator

When buying a vehicle, you often face a choice between a cash rebate or a lower interest rate. This calculator helps you determine which option will save you more money over the life of your loan.

Compare Cash Back vs. Low Interest Options

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What are Cash Back and Low Interest Rate Offers?

Auto manufacturers and dealers frequently offer promotional financing deals to attract buyers. These typically come in two forms: cash back rebates or reduced interest rates. Cash back offers provide an immediate reduction in the purchase price, while low interest rates reduce your monthly payments and total interest paid over time.

The best choice between these options depends on several factors, including the vehicle price, loan term, and the difference between the standard and promotional interest rates. This calculator helps you make a data-driven decision by comparing the total cost of both options.

How to Compare Cash Back vs. Low Interest Rate

To determine which option is better financially, we need to compare the total cost of each loan over the entire repayment period:

Step 1: Calculate the effective loan amount with cash back

$$L_{cb} = P - C$$

First, we subtract the cash back amount from the purchase price to find the effective loan amount.

Step 2: Calculate monthly payment with cash back (at standard rate)

$$M_{cb} = L_{cb}\frac{r_{std}(1+r_{std})^n}{(1+r_{std})^n-1}$$

We then calculate the monthly payment on the reduced loan amount but at the standard (higher) interest rate.

Step 3: Calculate monthly payment with low interest rate

$$M_{lr} = P\frac{r_{low}(1+r_{low})^n}{(1+r_{low})^n-1}$$

For comparison, we calculate the monthly payment on the full purchase price but at the promotional (lower) interest rate.

  • P = vehicle price (before any rebates)
  • C = cash back amount
  • L_cb = effective loan amount with cash back (P - C)
  • r_std = standard interest rate (monthly)
  • r_low = low promotional interest rate (monthly)
  • M_cb = monthly payment with cash back option
  • M_lr = monthly payment with low rate option
  • n = number of monthly payments (loan term)

How to Use This Calculator

  1. Enter the vehicle price (before any rebates or discounts)
  2. Input your down payment amount or percentage
  3. Enter the loan term in months (typically 36, 48, 60, or 72 months)
  4. Input the cash back (rebate) amount offered
  5. Enter both the standard and promotional interest rates

Important Notes

This calculator provides estimates only. Actual loan terms and payments may vary. Consult with a financial advisor before making major financial decisions.

  • Cash back offers may be subject to certain conditions or restrictions. Always read the fine print.
  • Low interest rate offers often require excellent credit scores. Not all buyers will qualify for the advertised rate.
  • Some dealers may be willing to negotiate on price if you choose the cash back option, potentially increasing your savings.
  • This calculator doesn't account for taxes, fees, or additional warranties which may affect your total cost.