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Devolución de Dinero o Tasa Baja: Escoja Sabiamente

Cash Back or Low Rate Financing: Choose Wisely

By Antonia Wang

Which is better: choosing the manufacturer's rebate or the low rate financing option? Many consumers have the same dilemma when shopping for a new car and the answer is not always obvious.

You can use a manufacturer's rebate:

  • As a down payment for the purchase of your vehicle that would lower the amount you need to finance, or
  • Get a check from the manufacturer to use as you please

Low rate financing, in contrast, sounds great too - until you run the numbers. The amount financed could have a bigger impact on your monthly payments than the total interest charged or the interest rate itself.

Take for example a financing offer for 24 months at 0% financing or $2,000 cash back on a car worth $20,000. If you decide to finance your purchase using your credit union's rate of, say 6.5% and take the manufacture's rebate (hence financing only $18,000) you would save around $30 on your monthly payments.

Low interest rate plans are limited to shorter periods of time and often use escalating rates. You could get 0.9% for 24 months, 3.9% for 36 months, etc. Low interest rates in financing are usually short-lived and when they end, many people cannot afford the monthly payments.

Likewise, it is possible that you do not even qualify for 0% financing to begin with, since such offers are usually reserved for people with a credit score of at least 680, according Bankrate.com's auto section.

To learn what your best options are, use a car loan rate comparison calculator, such as the one offered by Bankrate.com. It will help you compare interest rates and the monthly payment you would be making should you get your loan from a dealer or your credit union. According to this calculator, in most cases you can save money by choosing an auto loan from a credit union, when using the manufacturer's rebate as well.

Before signing that contract, ask your dealer about a credit union loan or visit your credit union to compare the costs and the monthly payments that come with driving your new vehicle.

Published 9-6-2012.

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