Ask an expert: Rebate vs. dealer financing

Question: I've seen lots of advertising for special rebates and low financing, but it seems I have to choose between low financing through the dealer or the rebate. Which is better?

Answer: You’re right; dealers will often make you choose between one and the other. In most cases, taking the rebate and applying it to your down payment is your best deal.

First, not all customers qualify for the zero percent APR or other special low rates offered by the dealer. These rates are typically only available to people with exceptional credit ratings. And remember that credit scores are formulated differently by each dealer, so even though you may qualify for zero percent financing at one dealer, you may not at another. By contrast, everyone is eligible for the rebate.

The terms of these low-rate loans are also very short – typically three years – which prices many people out of the deal because they can’t afford the high monthly principal payments. The low rate may also be only an introductory offer and your monthly charges could skyrocket once it expires. Or, the dealer may insist on a certain down payment in order for you to qualify for the zero percent or other low-rate financing.

Moreover, if you choose a low rate from the dealer, you can forget the new model and the custom paint color, because low-interest financing is typically only available on older models that aren’t moving, and you have to choose from what the dealer has available on the lot. The same is generally true for rebates. They’re designed to move less popular models or cars from previous seasons off the lot before the new ones come in.

But if you’re willing to shop around, you’ll likely end up saving. Say you want to buy a $20,000 car and have a $3,000 down payment. The dealer tells you he can give you a $3,000 rebate or a special five percent APR. You consult your neighborhood bank, and it offers you a loan with seven percent interest. Over a four-year term, taking the rebate and a bank loan instead of the dealer financing will save you $2,568, or about $53 a month.

Rick Finch
SVP and General Manager, Autos


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