<< Back to Consumer Tips & Articles Archive

Rebate or Low Rate: Select One

Rebate or low-rate financing? Car buyers often face this dilemma, and the decision isn't obvious.

You can use a factory rebate:

• As a down payment toward your purchase, lowering the amount financed, or
• In the form of a manufacturer's check, to use as you wish.

Low-rate financing, on the other hand, sounds great too--until you crunch the numbers. The amount financed has a larger impact on monthly payments and total interest charges than the interest rate does.

Take an offer for 0% financing for 24 months or a $2,000 factory rebate on a $20,000 purchase. If you take the credit union's rate of, for example, 6.5% and the rebate (thus financing only $18,000), you actually would save about $30 a month.

Discount financing plans generally are limited to shorter lengths and use a sliding scale where the best rates are for the shortest terms. And there isn't always one rate. You may find 0.9% on 24 months, 3.9% on 36 months, and so on. Low-rate financing terms often are so short that most people can't afford the monthly payments.

To find out which is better for you, see the calculator "Which is better: a rebate or special dealer financing?" at www.cuna.org. Go to "Consumer Information" and choose "Calculators."