Should I Choose Cash Back or Low-interest Financing?

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Incentives are an important component in new and used car marketing, serving as enticements to attract your interest and ultimately help salespeople close deals. The two most significant incentives are cash-back deals and promotional financing. However, in most cases, you’ll have a choice of one or the other, not both. Here’s how to determine whether cash back or a financing deal is the best choice for you when purchasing a car.

Shopping for a New or Used Car

Savvy shoppers know that new-car deals exist, and aren’t about to pay full price for a car. The same can be said for used cars, although the deals for previously owned models typically aren’t as strong. Both the Manufacturer’s Suggested Retail Price (MSRP) on new cars and the windshield price on used cars are merely recommendations, and these prices aren’t set in stone.

Unless you’re buying a limited edition or exotic model, there’s a good chance you can shave hundreds, if not thousands of dollars off the cost of your new car. Used-car savings are also possible through careful negotiation.

Manufacturer Cash Incentives

Sometimes known as customer cash, bonus cash is money provided by the manufacturer directly to the customer. In most instances, you’ll apply cash to the down payment, reducing your out-of-pocket (or upfront) expenses. Some deals may allow customers to keep that money for themselves.

For example, if you find a $30,000 car and the bonus cash is $1,500, then you’ll reduce your cost to $28,500. If you’re comparing two similar models from different manufacturers and the price for both is nearly identical, the value proposition tilts toward the model with the better cash incentive.

Bonus cash, however, isn’t the only money incentive offered. Depending on the manufacturer, you may find loyalty bonuses, competitive owner cash, recent college graduate and military veteran programs, and other miscellaneous incentives. Here’s how these work:

1. Loyalty bonus. The way this cash offer works has everything to do with the vehicle you own. For example, if you are shopping for a Buick LaCrosse and you already own a Buick or another GM model, you may qualify for an additional bonus. Sometimes, this offer requires customers to trade in their current vehicle and finance with the manufacturer, but not always. Show proof of current ownership, and claim the cash.

2. Competitive owner cash. Manufacturers love welcoming new customers to the fold, especially those coming from competing brands. Such “conquest” buyers may qualify for this bonus, simply by offering proof of ownership.

3. Recent college graduate program. Students who recently graduated from college or are about to may qualify for a special cash bonus designed exclusively for them. Proof of enrollment or a recent diploma may mean a few hundred dollars to apply to your down payment.

4. Military veteran and Armed Forces cash. Many manufacturers honor our nation’s military by offering special cash to enlisted members, veterans or both. You’ll need to show proof of service or your successful discharge from the military to qualify.

5. Miscellaneous programs. There are no limits to the types of cash bonus programs manufacturers use to entice shoppers. For instance, Kia offers a discount to Uber drivers, while Mazda has a mobility program reimbursing handicapped or disabled drivers toward the purchase and installation of adaptive driving aids or mobility assistance equipment on new and used models. Essentially, manufacturers can call the bonus whatever they want. All you need to know is if you qualify and what restrictions are in place, if any.

In some cases, manufacturers allow eligible buyers to combine cash offers, effectively reducing their final costs.  The operative word here is “eligible,” which means shoppers should read the fine print and discuss their options with the dealer to learn more.

Dealer Cash

The manufacturer isn’t the only one dispensing cash. Dealers often dangle funds, known as dealer cash, to get you to buy.

Dealer cash isn’t usually funds that come directly out of the dealer’s account. Instead, they represent monies given to the dealer by the manufacturer. The dealer then chooses what amount, if any, to pass on to customers. Those that do will promote this information on their websites and other marketing material.

Promotional Financing

Interest rates have been running very low for many years. It isn’t too difficult to obtain an auto loan through your bank or credit union for 5 to 8 percent.

While these rates are much lower than what you’ll pay on some credit cards, even better offers are available through the financing arms owned or associated with each manufacturer. To this day, you’ll find the occasional 0 percent APR offer. Most other promotional offers range somewhere between 0.9 and 2.9 percent APR. To qualify for promotional financing, you’ll need a high credit score.

Cash or Financing?

So, which choice is better for you: cash back or promotional financing? The answer is easy if you intend to pay cash for your car. If so, take the money and run.

But most of us rely on financing to put us behind the wheel of a car. When the choice is between bonus cash and a promotional financing offer, some calculating is necessary. Use an online auto loan calculator such as the one offered by to create and compare scenarios.

Scenario No. 1:  In the example of the $30,000 car with $1,500 in rebates, you’ll finance $28,500. A $28,500 loan for 72 months at 5 percent APR will cost you $33,047.28 with monthly payments of $458.99.

Scenario No. 2:  Let’s say you qualify for promotional financing of 0.9 percent APR over 72 months. We’ll also assume the manufacturer is dangling a $500 loyalty or competing owner bonus to sweeten the deal, which you’ll add to the $1,000 you’ll supply toward your down payment. Here, your loan cost is $29,287.44, a difference of $3,759.84. Even after accounting for the $1,000 you contributed toward the down payment, your savings are $2,759.84.

When it comes to incentives, especially certified pre-owned (CPO) models backed by the manufacturer (the kind we track here at CARFAX), you’ll typically find financing deals and the occasional cash-back offer. Sometimes, manufacturers also kick in maintenance coverage for up to one year and extend the warranty. Consider these latter two features as bonuses on top of whatever deal you cut.

Ultimately, individuals with high credit scores almost always qualify for the best loan deals. Even if you don’t qualify for the manufacturer’s promotional financing, your dealer may have competitive financing available, which still allows you to claim qualifying rebates and save money.

By | 2018-06-19T15:49:23+00:00 May 11th, 2018|Car Buying|0 Comments

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