This calculator will compare applying your rebate to an auto loan through a financial institution instead financing through the dealer and simply spending the rebate.
Will a Rebate Back Out in Value for You?
Quite often, auto dealers will offer customers the option of taking a rebate on their car purchase, or signing on for a dealer financed low interest loan. Car dealerships offer these as incentives to attract customers, and/or to reduce their on site inventory. While both offers are attractive, and both have their benefits, it is important to consider which deal is right for your circumstances. Typically, when customers accept a rebate, they will only receive the money after the dealer financing has been finalized. While this will eventually put money in the customer's pocket, it does nothing to immediately reduce the overall cost of the automobile. However, with independent financing, a buyer can often put their rebate to work for them by applying it directly to the cost of their new automobile.
There are typically two types of rebates that car dealers use to motivate customers into purchasing a new vehicle – the ‘instant rebate' and the ‘mail-in rebate'. With an instant rebate the money can be applied immediately to the total price of the car. This is an ideal situation for buyers, as it will reduce the total amount that they need to borrow, and can result in lower monthly payments and a general savings over the life of the loan. Unfortunately, instant rebates are fairly rare. The more typical type of auto rebate is the mail-in rebate, in which the customer receives the promised money only after filling out an application and returning it to the car dealer or automobile manufacturer. The buyer still receives the money, but it does nothing to reduce their auto loan. Car manufactures prefer the mail-in rebate because it allows them to gather valuable marketing information from consumers. Dealerships gravitate toward the mail-in rebate because it not only provides useful customer feedback, it also gives them an opportunity to increase revenue from the company's finance division.
Dealer Financing vs The Independent Lender
Assuming for the moment that the dealership you are purchasing your automobile from is offering a mail-in rebate, the question becomes one of financing. Here you will need to do a bit of research, and look into a number of different lenders and the auto loans they offer. The crux of any auto loan is the interest rate, and this will be largely determined by your credit history and current income projections. Consider a number of different lending institutions, including banks and credit unions, and compare the interest rates they can offer with what is being offered to you by the car dealership. It should be noted that some dealerships will offer no payments for a year as a further incentive to get customers to opt for dealer financing. While this may sound attractive, especially when combined with a manufactures rebate, it is merely delaying the inevitable. Interest on your car loan will be accruing whether or not you are required to make monthly payments.
Using the Dealer Auto Loan Rebate Calculator, you will be able to see and compare the possible savings available through dealership financing and/or an independent lender. The calculator will clearly illustrate both your average monthly savings as well as the total savings over the life of your auto loan. Run the numbers both with, and without, the applied rebate and determine which lending scenario is best for your circumstances, taking into account your estimated down payment, current and projected income, and monthly financial obligations.