When purchasing a new car, you may be faced with the decision of a low financing rate or cash back. Which should you choose? Unfortunately you probably have to crunch the numbers to get the answer.
The average rate on auto loans is 6.66% (according to bankrate.com). Suppose your local dealer is offering a choice between 1.9% financing on a 48-month loan or $2,000 in cash. To get the dealer incentives, you'll have to put $1,500 down. Assuming you don't have a trade-in, choosing the cash rebate would save you $404 more over the life of the loan than taking the low-interest loan. You'll pay a lot more interest by going this route -- $1,755 more in total, assuming you don't refinance or make any prepayments. Since taking the cash rebate reduced your loan amount by $2,000, you've reduced the amount of your principal payments -- and your total cost for the car -- significantly. If your rebate was just a little bit lower ($1,500 instead of $2,000, for example) then refinancing would be the better choice, with savings of $212.
Taking the rebate is often the better decision, since you must hold a relatively long-term loan in order to see the benefits of low-interest financing. That's why dealers tend to offer incrementally higher rates for longer-term loans: While you may be able to get 1.9% financing on a 48-month loan, the rate may be closer to 2.5% or 3% on a 60-month loan. The difference in savings between low-interest financing and a rebate can be just a couple hundred dollars. By calculating your savings beforehand, you'll be sure to make the right decision. You can find calculators online that can help you crunch the numbers.
For more information about deciding between a new car financing offer or cash back or to request an auto or homeowners insurance quote in Kentucky or Indiana:
Contact Tim Hamilton or Monica Landers at (859) 276-1234 or go online at www.timhamiltoninsurance.net or www.nationwide.com/timhamilton.
Hamilton Insurance Group, based in Lexington, KY, provides a full range of insurance products in Kentucky and Indiana, including auto, motorcycle, boat, homeowners, renters, life, & commercial insurance, as well as fixed and index annuities.