Save on Your Next Car Purchase

Dealer Rebate vs. 0% APR Interest

Thinking about buying a new car? Before you get started, make sure you’re familiar with the best ways to save money on the model you want. 0% APR interest rates and dealer rebates are two of the most common ways to get a better deal on your car, but each comes with its own pros and cons.

What are Dealer Rebates?
Car dealers often use rebate offers (ex: “Get cash back when you buy this car!”) to boost sales of certain models. Since manufacturers set rebate prices, you can research which manufacturers and models have done poorly in a given year and use this information to choose which model to buy. Think of a rebate as a coupon on a new car—it’s offered at the time of purchase and most dealers implement the rebate in the form of a discount on the car itself.

What is 0% APR Financing?
It’s important to note that auto dealers rarely offer rebates on top of interest-free financing, so don’t expect to see a lower principle figure on top of the amount you’ll save in interest. 0% APR financing is often not available for some of the most popular models, which can narrow down your choices considerably, plus it’s virtually never offered on loans of more than five years, which will carry higher interest rates. Your credit history also plays a role in the availability of this 0% APR offer. Finally, any reasonably low rate on a dealer-provided loan carries the risk that the seller will inflate the sticker price to make up for the amount you’ll save in interest.

The good news? Your car dealer’s “interest-free” offer isn’t your only option. As your credit union, we offer auto loans at extremely competitive rates (see our lowest rate now!). You’re financing with someone you already trust, plus you can rest assured that we have no stake in your car’s price tag. The best part? You may be able to save money through your CU’s financing option on top of that dealer rebate.

Which is Better?
It’s important to weigh your needs and circumstances when choosing which incentive is right for you. If you plan to pay the bulk of a car’s cost up front, using a rebate can be an excellent deal. If not, 0% APR financing may be an alternative option. Ultimately, your biggest savings may come from snagging the dealer rebate and getting a great financing deal from your credit union.

Real-World Example
Let's say you're considering a 2013 Ford F-150 XLT (Super Crew Chrome with the luxury package - you're not skimping out!). A local dealer in the DFW area is offering two options:

  • 0% APR for 66 months with Ford Credit Financing plus $2,000 trade assist
  • Up to $9,000 in total savings

Take a look at the true total costs of both options:

F150 XLT Super Crew 0% APR
with FMC?
OR Rebate & Low Rate
at Texans CU?
Sales Price  $47,730.00   $47,730.00
Rebate  $0.00   $6,000.00*
Amount Financed 
Interest Rate  0%   2.24%
Term  66 months   66 months
Monthly Payment  $723.18   $672.61
Finance Charge  $0.00   $2,662.26
Total Paid for Car  $47,730.00   $44,392.26

*The offer's fine print showed that the extra $3,000 in rebate requires you to finance through Ford Motor Credit, but at a much higher rate. Even without the extra $3,000 rebate offer, financing with Texans gives you a lower monthly payment and you pay overall much less for the same car!

As featured in Currents / eCurrents Winter 2014 edition

Sara Collins is a writer for NerdWallet, a personal finance website dedicated to helping consumers make smarter financial decisions.

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