Can Cash Back Offers Save You More Money than 0% Financing?

Understanding Cash Back Offers

With a cash back rebate, you receive a lump sum discount upfront. This reduces the total amount you need to borrow and can potentially reduce the amount of money you need for a down payment. Advantages of taking a cash back offer include:

• Immediate Savings: The purchase price is reduced instantly, often lowering your loan amount if financing is used.
• Lower Debt Burden: A smaller loan amount means less risk and potentially lower monthly payments.

Understanding 0% Financing

A 0% financing offer allows you to pay for a purchase over time without incurring interest charges. This means every payment goes toward reducing the principal amount. Typically, such offers have fixed terms (e.g., 36, 48, or 60 months) and require strong credit to qualify. The advantage of a 0% financing offer is that you do not have interest charges, meaning you pay exactly the purchase price, spread over time.

Keep in mind, many 0% offers have strict terms you must meet. For example, with some 0% offers, missing a payment or failing to repay within the promotional period may result in retroactive interest. Zero percent financing offers are often harder to qualify for as many dealers require an excellent credit score.

Deciding between the two options

Let’s take a look at an example. Let’s say you’re buying a car priced at $40,000, and you qualify for a 5.99% loan for 72 months from your financial institution. If the dealer offers a $7,500 cash back offer, you would save $1,230.16 more with the cash back offer instead of a 0% offer. Here is the breakdown:

Loan amount: $32,500 ($40,000 minus the $7,500 cash back)

Interest Rate and term: 5.99% for 72 months

Monthly Payment: $538.47 (vs $555.56 with 0% offer)

Total Cost: $38,769.84

Savings vs 0% offer: +$1,230.16

In conclusion, deciding between 0% financing and cash back depends on your preference and the terms you quality for. Always calculate the total cost of each option before making a decision. By evaluating your individual situation and offers, you can make the choice that aligns best with your financial goals.

Questions?
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