Cash Back or Low APR?

·See the worksheet below

Updated on July 10, 2008.

IN THE MARKET FOR a new car? If you're hoping for 0% APR, you might be in luck depending on the vehicle you plan to buy. Some leftover 2008 models — primarily SUVs and trucks — are currently paired with 0% financing.

But if you're shopping for a fuel-efficient car, you can forget that 0% APR. You may, however, qualify for low APR or cash back with a little hunting around.

To figure out which is the better deal — a rebate, 0% or low APR financing, crunch the numbers in our calculator to find out.

The Fine Print
You May Not Qualify
So you've figured out you're better off with 0% or low APR offer. You'll need a credit score of at least 680 to get approved for 0% APR and typically no less than a credit score of 600 to get 8% APR, says Bankrate.com automotive writer, Terry Jackson. Got a few bumps and bruises? You may find that you're not eligible for that low rate.

When you apply for low-APR financing, the car dealer runs your credit information by the manufacturer's financing division (most big manufacturers have their own credit divisions that operate dealer financing). Usually, the approval decision is based on your FICO score, as well as your income. So who qualifies? Good question. It varies by manufacturer. If you're in the market for a Toyota, for example, your credit will have to fall in the top two tiers (out of nine) that the company uses to categorize customer credit, says Irv Miller, group vice president of corporate communications at Toyota Motor Sales. Unfortunately, the manufacturers won't get more specific than that, but it pretty much goes without saying that if you're about to take out a loan (any type of loan), then you should review your credit report beforehand to make sure there aren't any errors or omitted information that could negatively affect your score. (For more on this, see our story.)

If you don't qualify for 0% or low-APR offer (or decide that the rebate is a better deal), be sure to shop around aggressively for the best rate on your car loan. In addition to dealer financing, be sure to price loans from a credit union or bank, says Rob Gentile, manager of the New and Used Car Price service for Consumer Reports.

And Even If You Do Qualify, You Might Not Want It
For many drivers, the rebate is the better deal anyway. Just which is more beneficial depends (in part) on the interest rate you'll be charged if you take the rebate, and how long you plan to keep the car. Generally speaking, the longer you plan to hold on to it, the better low-interest financing will be, says Edmunds.com's Toprak. "If you'll keep the car for only two or three years, take the rebate, because you won't accumulate that much interest savings," he says.

Other Tips

Gentile recommends that, rather than starting with the sticker price and trying to bring it down, customers should start with the price the dealer is paying to the manufacturer (also known as the invoice price) and negotiate up. "It always gets you a better deal," he says. For an estimate of invoice prices, check Edmunds.com's True Market Value (TMV) database. ConsumerReports.org offers the real numbers in its New Car Price Service but charges $14 for a new car price and $12 for each additional report. (Check a free sample report before you buy.)