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Cash Back or Low Interest Calculator

Car dealers often make you choose between a cash-back rebate and a low promotional APR. Enter both offers and your own bank's rate to see which one leaves more money in your pocket.

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How to use the cash back or low interest calculator

  1. Enter the vehicle price you negotiated and the cash-back rebate on offer.
  2. Enter the dealer's promotional APR and the APR you can get from your bank or credit union.
  3. Enter the loan term in months. Promotional rates often apply only to certain terms.
  4. Enter your down payment and the sales tax rate.
  5. Tick whether sales tax is charged on the price before the rebate, as it is in most US states.
  6. Read which option is cheaper and by how much, plus the bank rate at which the two break even.

How the two offers are compared

Each option is an ordinary car loan with the same price, down payment and term. The only differences are the amount financed and the rate:

Low APR: financed = price + tax − down, paid at the promo APR Cash back: financed = price − rebate + tax − down, paid at your bank's APR Payment M = P × i ÷ (1 − (1 + i)^−n) Total cost = down payment + M × n i = APR ÷ 12, n = months

The cheaper deal is the one with the lower total cost. The calculator also finds the break-even rate: the bank APR at which both deals cost exactly the same. If your bank's rate is below it, take the cash back; if it's above, take the dealer's low APR.

Worked example

The defaults are a $35,000 car with a $2,500 rebate, dealer financing at 1.9% or your bank at 6.5%, 60 months, $5,000 down and 7% sales tax charged before the rebate:

  • Sales tax in both cases: 7% × $35,000 = $2,450
  • Low APR: financed 35,000 + 2,450 − 5,000 = $32,450 at 1.9%, payment $567.36, interest $1,591.44, total cost $39,041.44
  • Cash back: financed 35,000 − 2,500 + 2,450 − 5,000 = $29,950 at 6.5%, payment $586.01, interest $5,210.37, total cost $40,160.37
  • Difference: $40,160.37 − $39,041.44 = $1,118.93 in favor of the low APR

The rebate cuts the loan by $2,500, but the higher rate adds $3,618.93 of interest, so the low APR wins. The two break even at a bank rate of 5.16%. If your state taxes the price after the rebate, the cash-back loan is $175 smaller and the low APR still wins, by $913.48.

How the answer changes

With the defaults above and only your bank's rate changing:

Your bank APR Better deal Saves you
3% Cash back $1,751.70
4% Cash back $946.95
5% Cash back $129.83
6% Low APR $699.60
7% Low APR $1,541.31

The term matters too. A low rate saves more interest on a longer loan, so the break-even bank rate falls from 7.24% on a 36-month loan to 5.94% at 48 months, 5.16% at 60 and 4.63% at 72. A bigger rebate pushes it the other way: at $4,000 back, the cash-back option wins by $642.02.

Things to check before you sign

Get your own loan preapproval first, so you know your real bank rate rather than guessing. Make sure the promotional APR applies to the term you want; many 0% or 1.9% offers are limited to shorter terms or buyers with top credit. Negotiate the price before mentioning either incentive, since the rebate should come off a price you've already agreed. If you're paying cash, the rebate is simply money off, and the low APR is worth nothing to you.

Frequently asked questions

Is 0% financing always better than cash back?

No. Even a 0% loan can lose to a large rebate if your own rate is low. In the default example with 0% dealer financing, the low-rate option saves $2,710.37, but a bank loan below 3.20% would make the $2,500 rebate the better deal. Run your numbers rather than assuming.

Can I get both the rebate and the low rate?

Usually not: manufacturers tend to offer one or the other on the same car. Some promotions combine a smaller rebate with a reduced rate, and you can model that by entering the smaller rebate and comparing it with your bank's rate.

Does sales tax apply to the rebate?

In most US states the rebate is treated as a payment toward the car, so you pay tax on the full price before the rebate. A few states tax the price after the rebate, which favors the cash-back option slightly. Check your state's rules and untick the box if it applies.

What if I pay the loan off early?

Then the low APR is worth less, because its advantage is spread across months of lower interest you'd no longer pay. The rebate is a one-time saving you keep regardless. If you expect to pay off early, the cash-back option becomes more attractive.

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Results are estimates for educational purposes and are not financial, tax or legal advice. See our disclaimer.