What this calculator does
When buying a car, dealers often present you with a choice: take a manufacturer cash rebate and finance at the standard rate, or skip the rebate and get a lower promotional interest rate (sometimes 0% APR). The difference in total cost isn't always obvious—a big rebate can offset higher interest, or vice versa. This calculator shows you the dollar impact of each path so you can decide which actually costs less.
The formula
Total cost = Vehicle price − Cash rebate + Total interest paid
Monthly payment is calculated using the standard amortization formula: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the loan principal, r is the monthly interest rate, and n is the number of months. Total interest is then (M × n) − P.
Worked example
Let's say you're buying a $28,000 car.
Option A: Take the $3,000 cash rebate
- Loan amount: $28,000 − $3,000 = $25,000
- Interest rate: 6.5% p.a. (5.42% after rebate)
- Term: 60 months
- Monthly rate: 5.42% ÷ 12 = 0.452%
- Monthly payment: $25,000 × [0.00452(1.00452)^60] / [(1.00452)^60 − 1] ≈ $475
- Total paid: $475 × 60 = $28,500
- Total cost: $28,500
Option B: Skip the rebate, get 0% APR
- Loan amount: $28,000 (no rebate)
- Interest rate: 0% p.a.
- Term: 60 months
- Monthly payment: $28,000 ÷ 60 = $467
- Total paid: $467 × 60 = $28,000
- Total cost: $28,000
In this case, the 0% offer wins by $500 over the loan term—even though you gave up $3,000 in cash. The interest savings are larger than the rebate.
Now flip the numbers: if that promotional rate were 3% instead of 0%, the monthly payment would be about $495, total cost $29,700—making the cash rebate path $1,200 cheaper. Context matters.
Common mistakes to avoid
Ignoring the full picture. Many buyers focus only on the monthly payment and miss that a lower rate can reduce total interest by thousands. Conversely, a large rebate can wipe out the advantage of a promotional rate if the term is short.
Forgetting that rebates reduce your down payment. When you take cash back, you're lowering the amount you finance. This cuts both the principal and the interest you'll pay. The calculator accounts for this automatically, but it's worth understanding: a $3,000 rebate on a $25,000 loan saves you roughly $500–$800 in interest alone (depending on the rate and term), not just the $3,000 itself.
Comparing different loan terms. A 48-month loan at 0% might look better than a 60-month loan at 5%, but the monthly payment will be higher. Always compare the same term. This calculator forces you to do that, which is the right approach.
Overlooking dealer-specific fine print. Some rebates only apply if you finance through the manufacturer's captive lender; others are cash-only or have conditions. Some promotional rates require a minimum down payment or credit tier. The calculator shows the math, but check the dealer's terms before deciding.
Tips
- Run both scenarios. Enter the cash rebate path, note the total cost, then zero out the rebate and enter the promo rate to compare side-by-side.
- Test the sensitivity. If the numbers are close, a small change in interest rate or term can swing the decision. Try adjusting ±0.5% to see how much room for negotiation you have.
- Factor in other costs. This calculator covers interest only. Don't forget insurance, maintenance, fuel, and registration when choosing a vehicle—those dwarf the difference between rebate and rate in most cases.
- Negotiate both. Dealers sometimes have flexibility on rates and rebates. If you're close to indifferent, ask whether they can improve one or the other to tip the scales.
This calculator provides an estimate for comparison purposes and is not financial or lending advice. Actual payments and total interest depend on your lender's terms, credit approval, and any additional fees. Consult your dealer or lender for exact figures.