If you are in the market for a new car, use this calculator to determine your monthly payments from various financing deals.
Some dealers combine cash-back with a low interest rate; others might offer simply low APR financing.
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.
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.
Worried that those low-APR offers will soon die away? Relax. "Low-APRs have been around long before 0%, and they'll be here long after," says Toprak. "They're one of the basic short-term pricing strategies used by the manufacturers." Of course, just what is considered "low" varies based, in part, on the overall interest-rate environment. But the APRs offered by the manufacturers tend to be consistently lower than those offered by banks.
The most common mistake customers make is foregoing negotiations with the dealer once they nail the lowest available interest rate. Keep in mind that this low rate is subsidized by the manufacturer, so the profit that the dealer stands to make on the car is still baked in, says Consumer Reports' Gentile. So be sure to bargain.
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.)
Finally, don't forget that cars are much more expensive than just their upfront sticker price. How much a car will really set you back depends on its fuel economy, repair needs and insurance fees (among other things). Check out Edmunds.com's True Cost to Own calculator before you head to the dealership.