Small Business Questions & Answers


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Ask About Auto Rebates vs. Low Interest Loans

by Remorseful Motorist | May 26, 2012

Subject :Finances

Dear Toolkit,

I knew I should have paid more attention in my high school math classes. For the first time in 40 years I've found a practical application for those dreaded story-problem solutions. How am I ever going to figure our whether to take the manufacturer's rebate on a new car and run. . .or. . .to choose the tantalizingly low interest rate they're offering as an alternative?


Remorseful Motorist

Dear Remorseful Motorist,

Weep not! Toolkit has the answer for your arithmetic dilemma. We are all barraged daily with those flashy ads trumpeting enormous rebates on new vehicles, only to fall into an ocean of decision anxiety when they give us a choice of the lump-sum-off up front or the incredibly low interest rate to finance our purchase over unbelievably long periods.

Automotive manufacturers have a long and dubious history of overpricing their wares. When market conditions or foreign competition get dicey, they don't like to admit their aggressive pricing policies so they offer "temporary rebates" instead. And since they own their own finance firms (a la GMAC and Ford Credit), they can confuse us further by offering alternative incentives in the form of low interest rates.

Here's a handy calculator to help you figure out whether to choose to lower your loan balance by taking the rebate or lower your monthly payment by taking the low interest rate. As you'll see from the calculator input values, your choice will depend on several variables such as the price of your new dream car, how generous the rebate may be and how charitable they felt when they set the interest rate.

Click on this link to have all these mathematical mysteries revealed.