New cars often come with many attractive offers, such as interest-free financing or a cash rebate. Consumers should carefully compare these options to choose the best for themselves.
First of all, consumers need to have a good or an excellent credit score to take advantage of these offers. Score requirements vary. A consumer must have a score of 700 to qualify for some offers. Others may require at least a score of 630 or 650. Today, consumers may have difficulties qualifying for such deals, as many of them have seen their credit ratings decline during the tough economic times. Those who qualify will need to do some calculations to find the best deal.
If you are looking for a low monthly payment, avoid the interest-free financing offers. Interest-free loan length is usually 36 to 48 months. Depending on the loan amount, the monthly payment amount can be twice as high as a payment on a 60-month loan at a current interest rate. If you can afford a higher monthly payment, interest-free option gives two advantages. First — the obvious one — you are not paying any interest. Second, you will pay the loan off much faster.
If you are considering between taking a rebate and the interest-free financing, do some calculations. Cash-back options sound very attractive, but aren’t always a great deal. Most rebate offers range between $2,000 and $3,000. On occasion, you may find a $5,000 rebate. The rebate and your down payment will reduce the total amount of the car loan. Then, calculate the total amount of interest you would pay if you financed it at the current interest rate for the same period of time as the interest-free loan. An online interest calculator can do the job for you. Add the interest amount to the price of the vehicle. You may be surprised to see that taking an interest-free financing may be a better deal. Forgo the rebate option, unless the cash amount is higher than $2,000-$3,000.