How to use the car rebate vs low apr calculator
- Enter the vehicle price, your down payment and the loan term in months.
- Enter the cash rebate, the APR your own bank offers if you take the rebate, and the promotional APR that comes without it.
- Optionally open the advanced options to add sales tax and choose whether it is charged before or after the rebate.
- Compare payments and total cost, see which option is cheaper, and read the break-even APR for the rebate loan.
Formula
Financed = price + sales tax - down payment - rebate (rebate option)
Financed = price + sales tax - down payment (low APR option)
Payment = P x r x (1 + r)^n / ((1 + r)^n - 1), r = APR / 12
Total cost = down payment + payment x months
Each payment is rounded to the cent. The break-even APR is the rate on the rebate loan where both total costs match, found by bisection between 0% and 100%.
Worked example
A $35,000 vehicle with $3,000 down over 60 months. The rebate of $3,000 leaves $29,000 to finance at 6.9%, a payment of $572.87 and a total cost of $37,372.20. The low rate of 1.9% finances $32,000, a payment of $559.49 and a total cost of $36,569.40.
The low APR is cheaper by $802.80. The break-even rate on the rebate loan is 5.91%: with a bank rate below that, the rebate wins, and above it the low APR wins.
Why this is a real choice
Many offers give you one or the other. A rebate lowers the amount you borrow, and a low APR lowers the cost of each borrowed dollar. Which saves more depends on the size of the loan, the term and the gap between the two rates. A larger rebate or a shorter term favors the rebate, while a large loan over a long term favors the low rate.
Getting your own rate first
The rebate option needs a rate that you can actually get elsewhere, such as from a bank or credit union, so ask for a quote before you compare. Use the break-even APR as a check: if your quote is below it, take the rebate. You can also test other payments with the car payment calculator or compare loans with the loan comparison calculator.
Sales tax and other details
In some places sales tax applies to the price before the rebate, and in others to the price after it. The advanced field lets you test both, and the tax is added to the amount financed. Fees, add-ons and a trade-in are not modeled. For the full picture of owning the car, see the total cost of car ownership calculator.
Assumptions and limits
- Both loans are fixed rate with level monthly payments and run the full term. Paying early would reduce interest on either loan.
- The rebate is applied to reduce the amount financed. Sales tax is zero unless you enter a rate, and you choose whether it is charged before or after the rebate.
- Rates are values you enter, and the defaults are examples. The calculator does not know what any lender offers.
- Fees, add-ons, trade-in, loan approval and incentives that depend on credit are not modeled. This is arithmetic, not financial advice.
Frequently asked questions
Should I take the rebate or the low APR?
Compare total cost over the term. Whichever option costs less in total is the better deal, and the break-even APR shows how low your own bank rate must be for the rebate to win.
What is the break-even APR?
It is the interest rate on the rebate loan at which both options cost the same over the term. Rates below it make the rebate cheaper, and rates above it make the low APR cheaper.
Does the rebate count toward my down payment?
Here it reduces the amount financed, the same effect as a larger down payment, but it is entered separately so the two options stay clear.
Why does a longer term favor the low APR?
A longer term means the borrowed amount sits for more years, so each point of interest costs more. The rebate saves a fixed sum, while the interest savings keep growing with the term.