Compare two common dealer incentives: a cash rebate vs low-interest manufacturer finance. Find which saves you more money overall.
| Option | Monthly payment | Total paid |
|---|
Car dealers frequently offer a choice: take a cash rebate (e.g. $3,000 cash back) or choose a promotional low interest rate (e.g. 0.9% p.a. instead of standard 8.5%). These promotions are never truly equivalent — one will save you more money than the other depending on the loan amount, term, and how you would use the cash rebate. This calculator does the maths for you.
Vehicle price: $40,000 | Standard rate: 8.5% p.a. | Term: 5 years
| Option | Loan Amount | Rate | Monthly Payment | Total Repaid | Net Cost |
|---|---|---|---|---|---|
| Cash back $3,000 + standard rate | $40,000 | 8.5% | $820 | $49,200 | $49,200 − $3,000 = $46,200 |
| Low interest 0.9%, no cash back | $40,000 | 0.9% | $676 | $40,560 | $40,560 |
| Winner | Low interest saves $5,640 | ✅ Low interest wins | |||
| Scenario | Cash Back Likely Wins | Low Interest Likely Wins |
|---|---|---|
| Loan amount | Small loan ($10,000-$20,000) | Large loan ($35,000+) |
| Loan term | Short (1-2 years) | Long (4-5+ years) |
| Rate difference | Moderate (standard vs 4%) | Large (standard vs 0-2%) |
| If cash back invested | At high return rates | Less relevant |
Dealers often inflate the purchase price when offering cash back or low-rate promotions. A "free" 0% rate might require paying full list price, while the cash back option opens negotiation room. Always negotiate the vehicle price independently before discussing finance terms — the finance structure should be evaluated against the same purchase price, not a different dealer price for each option.
Is dealer cash back or low interest rate better?
It depends on the loan size, term, and the specific rates offered. For large loans ($35,000+) over 5 years with a very low promotional rate (0-2%), the low rate almost always saves more than cash back. For smaller loans or shorter terms, cash back can be more valuable. The calculator above computes the total cost under both scenarios for your specific numbers.
How do I compare cash back vs low interest on a car?
Calculate the total amount repaid under each option: (monthly payment × number of payments) for each scenario. Then subtract the cash back from the cash back option's total. Whichever total cost is lower wins. The low-interest option often wins over 5 years because even a 6-7% rate reduction on a $40,000 loan saves far more than $3,000 in cash back.
Do dealers inflate prices when offering low interest rates?
Often yes. A 0% finance offer may require paying list price or a specific configuration, while cash back buyers may negotiate more freely. Always establish the vehicle price you are willing to pay before discussing finance. Compare the total cost (price paid + total interest) of both options to identify the genuinely better deal.