Cash Back or Low Interest Calculator
Decide between a manufacturer cash rebate and a subsidised low-interest offer.
About Cash Back or Low Interest Calculator
Car manufacturers incentivise purchases through two mutually exclusive offers: a cash rebate (applied like an extra down payment) or a below-market interest rate on financing. Taking the rebate reduces your loan amount but leaves you paying the market rate. Taking the low-interest deal means financing a higher amount but at a subsidised rate. Which is better depends on the spread between your market rate and the subsidised rate, and the size of the rebate. Generally: larger rebates favour cash-back; very low subsidised rates (0–1%) often beat the rebate regardless of rebate size.
Formula
Monthly payment (both scenarios)
Payment = Loan amount × monthly rate / (1 − (1 + monthly rate)^−term)
- P
- Loan amount (price − down − rebate for cash-back; price − down for subsidised)
- r
- Monthly rate (APR / 12)
- n
- Term in months
Worked example
With the default values below, Cash Back or Low Interest Calculator returns Better Deal of Low-Interest (Subsidised APR) — LOWER TOTAL COST. Change any input above and every figure here is recalculated in your browser.
Inputs used
- Vehicle Priceminimum 0 $
- 30,000 $
- Down Paymentminimum 0 $
- 3,000 $
- Cash Rebate Amountminimum 0 $
- 2,000 $
- Your Market APR (standard financing)accepts 0–50 %
- 7 %
- Subsidised APR (dealer offer)accepts 0–50 %
- 1.9 %
- Loan Term (years)one of 2 years (24 months), 3 years (36 months), 4 years (48 months), 5 years (60 months), 6 years (72 months), 7 years (84 months)
- 5 years (60 months)
- Sales Tax Rateaccepts 0–20 %
- 7 %
- Tax calculated on rebated price?
- No
Results
- Better Deal
- Low-Interest (Subsidised APR) — LOWER TOTAL COST
- Total Cost DifferenceHow much cheaper the winning option is over the full term.
- $3,669.60
- Cash-Back Monthly Payment
- $536.61
- Cash-Back Total Cost
- $37,197
- Cash-Back Total Interest
- $5,097
- Low-Interest Monthly Payment
- $508.79
- Low-Interest Total Cost
- $33,527
- Low-Interest Total Interest
- $1,427
- Monthly Payment Difference
- $27.83
Step by step
- 1Cash-back: loan amount= $27,100
- 2Cash-back: monthly payment at 7.00%= $536.61
- 3Cash-back: total cost= $37,196.75
- 4Low-interest: loan amount= $29,100
- 5Low-interest: monthly payment at 1.90%= $508.79
- 6Low-interest: total cost= $33,527.15
- 7Verdict= Low-Interest (Subsidised APR) — LOWER TOTAL COSTThe subsidised rate saves $3,669.60 in total payments compared to taking the rebate.
Assumptions and limits
- The result is derived only from the 8 inputs listed above. Anything not among them is not part of the calculation.
- In particular, this calculator does not take inflation, fees or charges or compounding frequency into account.
- Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
- This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.
How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.
Frequently Asked Questions
When does the cash rebate usually win?
The rebate wins when your market financing rate is close to the dealer's subsidised rate — the rate advantage is small, so the upfront cash reduction matters more. It also wins for very short loan terms where there's less time for the low rate to generate interest savings.
When does the low-interest rate usually win?
The subsidised rate wins when the rate gap is large (e.g., market rate 8% vs dealer 0%) and the loan term is long. More months at a dramatically lower rate accumulates more savings than the one-time rebate.
What if I plan to pay off the loan early?
Early payoff reduces the advantage of a low interest rate (less time to earn savings). If you plan to pay off quickly, the rebate is more attractive. Re-run the calculation with a shorter term to simulate early payoff.
Does tax treatment of the rebate affect the analysis?
In most US states, sales tax is calculated on the full vehicle price regardless of rebate. Some states (Michigan, for example) compute tax on the after-rebate price. Toggle the 'Tax on rebated price' option to reflect your state's rules.