Zero Percent Financing vs. Cash Rebate Calculator
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New car season is right around the corner and we can expect some exciting cars to hit the market in 2010. We can also expect a blitzkrieg of ads offering us zero percent financing or a cash back rebate. How do you know which offer to take? They both sound great, but theres a quick way to help you figure out which option you should choose with the Zero Percent Financing or Cash Back Calculator.
The idea is simple. If the total amount of interest paid over the life of the loan is greater than the amount of the cash rebate, 0% financing is a better deal. If the amount of interest is less than the cash rebate, you should finance the car through a third party or dealer and take the cash rebate.
How does it work?
Youll need a couple of pieces of information before you get started.
1. The total amount that you will finance when you purchase your car
This is usually the final price that youre paying for the car before any cash rebates and after any trade in values.
2. The interest rate of the car loan if you would finance your car through a third party
Before you purchase your car, you should have an idea of what kind of interest rate you could get on your auto loan if you financed your auto purchase through a bank or dealer. Bankrate.com updates weekly average interest rates that you can use as a guide.
3. If you finance the car, how long is the term of the loan in months?
Typically terms on auto loans range from 36 60 months (3 5 years)
4. Manufacturers cash rebate
How much will the manufacturer or dealer offer in a rebate?
As an example I entered some data in the light blue area to show how it works.
I am expecting to finance $15,000 and my bank will finance that at an interest rate of 5% for 36 months. The dealership Im working with is offering a $1,000 cash back rebate. Based on this information I can decide if I should take the rebate or zero percent financing.
My monthly payment is $449.56 based on the interest rate and term I entered above. Over the life of the loan Ill pay $1,184.28 in interest for a total cost of $16,184.28 (principal + interest). Since the amount I would pay in interest is greater than the cash rebate, I should take the 0% financing..
However, say I was able to negotiate a better interest rate through my bank and get a 4% loan instead.
The total interest I pay over the life of the loan is only $942.95 which is less than the amount I could receive via cash back rebate. Therefore, I should take the rebate and finance through my bank.
Try out the calculator yourself and determine which offer is the best choice for you.
Are you ready for retirement? Head over to Allstate.com to find out.
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