Should You Take the Cash Back or Low APR Financing on a New Car?

September 13, 2008 By Debbie Dragon

Last week I purchased my first new car… ever.  I had been driving a used Chevy Cavalier for the last 9 years - one I financed through a dealer when I was 19 years old.  The car is now being used by my husband as the back-and-forth to work vehicle, thanks to it’s good gas mileage.  It was just getting too small for getting my kids in and out of their car seats in the back and it has no back doors - not to mention the truck that doesn’t latch.

I wanted a vehicle that didn’t have a ton of miles on it, but was not set on having to buy new.  I understand that the value of a car depreciates so quickly that it’s really not considered a “good investment” by any means.  But I figure if I can get 10 years out of this car like I did my last car, (without a ton of repairs necessary over that time, either) then it’s a good enough investment for our family!

I selected a 2008 Chevy HHR.  This car is really cute, but that really wasn’t why I picked it!  It has 4 doors, which is huge to a mom with a bad back who has been struggling to get her 2 kids into carseats without back doors, let me just tell you!  It has incredible cargo area, and I got the additional safety package (airbags in the back doors for the kids, anti-lock brakes, front airbags, and some other stuff).  I was approved for financing through GMAC, and was given a choice of taking 0% interest over the 60 month loan; or $2,000 cash back.  I actually told the dealer I’d have to call him back, because I just didn’t know which option would be better!

I found an article on SmartMoney.com, with a calculator to help me determine whether or not I’d make out better with a 0% interest rate for the life of the cash loan or taking $2,000 cash back.  After entering in the finance details of the car, including the full price of the car (and adding in the extended warranty with $0 deductible) I discovered it was definitely better to take the 0% interest for the life of the installment loan- to the tune of $57 PER MONTH better.

The reason the 0% financing works out better for me is because had I chosen the $2,000 cash back offer, my interest rate would have been 8.8%.  This makes no sense to me, but it was explained to me that I qualified for either their 0% offer or cash back, but not for a low interest rate on top of the cash back. 

If you’re looking at buying a new car and have the option of taking 0% interest for the life of the loan, or receiving a cash back incentive- make sure you try out that little calculator on SmartMoney.com to determine which gives you the better deal.

Posted in automobiles, autos, cars, lifestyle, loans, personal finance basics

• Hybrid Diesel Electric VW Golf Everyone is already aware of what a hybrid electric car is, but there is a way for automakers to take this concept a step further, and that is to create hybrid diesel electric cars. Although...
• How to sell a used car I sold my 2001 Nissan over the weekend. I didn't get what I was asking, but I got what I wanted and the buyer got a great little car. I tried a number of different...
• The New BMW Diesels, Now Hitting the US The new BMW X5 xDrive35d is one of the new 2009 cars to hit the market, alongside the updated BMW 335d sedan. The X5 xDrive35d is a hybrid that runs on diesel, utilizing the technology...
• Weakon 119: Lack of Financial Education Of the founding principles of Weakonomics, the lack of personal finance education in the populous is likely the most important. Weakon 119 is not an intro to personal finance, its an exploration of why there...
• Supreme Court Decides Exxon Doesn't Have Any Money; Reduces Valdez Fine. I guess profits in the billions every quarter for the last couple of years just isn't helping Exxon stay afloat, so the Supreme Court just declared that the $2.5 billion in punitive damages owed for...