Finance/Rate vs Rebates
Chuck Anderson Ford Buying Guide
Bigger Rebate or Lower Interest Rate?
When you have the choice between promotional financing and a larger manufacturer rebate, the lowest APR is not automatically the best deal — and neither is the biggest rebate.
The better choice depends on how much you finance, your sales tax, how long you expect to keep the loan and when you normally trade.
Illustrative example only. This does not represent a current Ford Motor Company or Ford Credit incentive program.
The Question
Is an extra $3,000 rebate worth giving up 2.9% financing?
Sometimes it is. Sometimes it isn't.
The larger rebate reduces your purchase amount immediately. The lower APR works differently: its savings accumulate gradually by reducing the amount of interest you pay each month.
About $38,010 Using this example, a 9% estimated sales tax rate and carrying the loan for all 72 months, the approximate break-even point is $38,010 before the incentive is applied.
Below that amount, the larger $5,000 rebate generally produces the lower calculated cost. Above that amount, the lower 2.9% rate becomes increasingly valuable.
Interactive Comparison
Compare the two options yourself
Enter the estimated vehicle amount before the rebate, your estimated sales tax rate and how many months you expect to keep the loan.
Example: $50,000 before either rebate
Enter your estimated combined rate
Use 72 to compare the entire loan term
$2,000 Rebate + 2.9% APR
Amount after rebate + estimated tax$0
Monthly payment$0
Interest paid by selected month$0
Calculated cost through payoff/trade$0
Remaining balance$0
$5,000 Rebate + 5.9% APR
Amount after rebate + estimated tax$0
Monthly payment$0
Interest paid by selected month$0
Calculated cost through payoff/trade$0
Remaining balance$0
Calculating...
Calculator is for illustrative purposes only. It assumes sales tax is financed, no additional cash down is applied, no other fees are included and the loan has no prepayment penalty. Actual financing, taxes and incentive treatment may vary.
Amount Financed
The more you borrow, the more valuable a lower APR can become
The additional $3,000 rebate is a fixed benefit. The value of the interest-rate reduction changes depending on the size of the loan.
On a larger balance, the difference between 2.9% and 5.9% can eventually outweigh the extra rebate. On a smaller balance, there may not be enough interest expense for the lower APR to recover the rebate you gave up.
Total 72-Month Cost by Pre-Incentive Amount
Example assumes a 9% estimated sales tax rate.
$2,000 rebate + 2.9%
$5,000 rebate + 5.9%
Approximate break-even
| Pre-Incentive Amount | $2,000 @ 2.9% | $5,000 @ 5.9% | Approximate Advantage |
|---|
Your Trade Cycle Matters
A low interest rate becomes more valuable the longer you keep the loan
The rebate benefit happens immediately. The benefit of a lower interest rate is earned over time.
If you normally trade every two or three years, you may never remain in the loan long enough to collect the full savings offered by the lower APR.
That can make the larger rebate especially important for customers with a shorter trade cycle.
Trade after 24 Months
The low-rate break-even is approximately $65,200.
Trade after 36 Months
The approximate break-even drops to $49,500.
Trade after 48 Months
The approximate break-even is $42,450.
Keep all 72 Months
The approximate break-even falls to $38,010.
How Trade Cycle Changes the Break-Even Point
Approximate pre-incentive amount where the lower APR catches up with the larger rebate.
Don't Forget Sales Tax
The larger rebate can have another advantage
When a qualifying manufacturer rebate reduces the taxable purchase amount, the rebate can be worth more than its face value because it may also reduce the sales tax due.
Additional Rebate $3,000
Example Tax Rate 9%
Additional Tax Savings $270
In this example, the $3,000 additional rebate could represent approximately $3,270 of immediate economic benefit before comparing the interest cost of the two loans.
Tax rules and applicable tax rates can vary by transaction and jurisdiction. This example is intended only to show how sales tax treatment can affect the comparison.
Which Option Should You Choose?
The answer depends on your purchase
A financing incentive should be evaluated based on your actual amount financed and how long you realistically expect to keep the loan.
The larger rebate may make more sense when...
You are financing a smaller amount, expect to trade or pay off the vehicle relatively early, or want the immediate benefit of reducing your purchase amount.
A larger rebate may also provide additional savings when it reduces the amount subject to sales tax.
The promotional APR may make more sense when...
You are financing a larger balance and expect to keep the loan for most or all of the scheduled term.
The longer your balance remains outstanding, the more opportunity a lower interest rate has to generate meaningful savings.
At Chuck Anderson Ford, we can compare both choices side by side before you make a decision. Sometimes the promotional APR wins. Sometimes the additional rebate wins. The important part is doing the math based on your amount financed, your trade cycle and your actual transaction.