WOULD YOU GIVE UP 0% FINANCING FOR $5,000 OFF?

0% financing or a bigger discount? Which one wins? Make sure you watch this video before you choose. A dealer offers you a choice. Take 0% financing or an extra $5,000 off the vehicle. Which one do you take? Some people say, always take the 0%. You're using money for free. Other people say, take the discount. Get the price down. Well, both of those answers can cost you money, and of course, the right answer for you depends on what rate you'd qualify for without the 0%. The truth is that until you compare the complete deals, you don't know which one wins. I'm Kevin Hunter, the Homework Guy. Today, we're going to put two offers on the same vehicle side by side, count the actual dollars, and show you how the winner can change. And before we're finished, I'll give you the exact question to ask when the dealer says, which payment plan works better for you? Because your first question should be, which deal cost me less money? Let's start the conversation with something important. A dealer discount and a manufacturer rebate are two different things altogether. The dealer discount is money you negotiate off the selling price. It's the price break the dealer gives you. A manufacturer rebate is an incentive which stands all on its own and has its own eligibility rules. But if the dealer shows you a rebate, don't let them confuse you as if it's money they are discounting off of the price because that's not the dealer doing it. There can also be a problem where sometimes a rebate cannot be combined with the special financing. Sometimes certain incentives can. You need the actual program terms in writing to examine yourself. If a salesperson says you lose the discount with 0%, ask which discount? Show me the dealer discount separately from the manufacturer rebates. Don't let everything get stirred together like a confusing dealership casserole. You need to see the individual ingredients. How did they get to that bottom line they're talking about? And 0% doesn't automatically mean that you pay sticker price. If you accept 0%, keep negotiating the vehicle price down. Now let's build an example. These are example numbers, not an advertised offer on a particular vehicle. We're comparing the same vehicle, the same equipment, and the same 60-month loan term. No trade, no down payment, no optional products. This is a clean deal. The dealer has one of two offers. Offer A has a written out-the-door price of $45,000, including taxes and required fees. You finance that entire amount at 0% for 60 months. $45,000 divided by 60 is $750 a month. Your interest cost comes out to zero. Your total dollars paid, $45,000. Pretty simple math, right? Now Offer B comes into the picture. You give up the 0% financing and receive an additional $5,000 rebate. For our example, the final written out-the-door total now drops to $40,000. In a real deal, have the dealer calculate the taxes correctly, because rebate tax treatment varies by state. Your bank approves you at 5.9% for 60 months. We're assuming a standard car loan with no additional financing fees. Your payment is approximately $771.45. Your total payments are approximately $46,287. That includes about $6,287 in interest. Remember offer A, $45,000 at 0%, total paid $45,000. Offer B, $40,000 at 5.9%. Total paid, approximately $46,287. 0% wins this example by $1,280. You've got $5,000 off the purchase but paid more than $6,000 in interest. The bigger discount comes out last on this one. Now watch what happens when you change one number. The credit union offers 2.9% interest instead. Same $40,000 balance, same six months, your payment becomes approximately $716.97. Total payments, approximately $43,018. Now the rebate deal wins by $1,982. It's the same vehicle, same rebate, same term, different interest rate, different winner. That's why always take 0% isn't necessarily some sound advice or a sound strategy. It's a guess wearing a confident expression. Here's the basic test. How much extra interest in financing costs will I pay to receive the lower out-the-door price? If you save $5,000 up front but pay $6,000 extra to finance it, well, you've gone backwards in that situation. If you save $5,000 and pay $3,000 extra to finance it, you're ahead by $2,000. For this particular example, the breakeven point is about 4.7% interest over 60 months. Below that interest rate, the $40,000 price with the rebate costs less. Above that, the $45,000 with 0% deal That break-even number only applies to these amounts in this term. Change the numbers and you need to run the math all over again. So let's talk about a down payment. Suppose you have $20,000 to put down. With the 0% offer, you finance $25,000. Over 60 months, you repay $25,000. Add your $20,000 down payment, and your total is still $45,000. With the rebate offer, you finance the $20,000 at 5.9%. Your total loan payments are approximately $23,144. Add the same $20,000 payment. Total dollars paid, approximately $43,144. Now the rebate wins by about $1,856, even at 5.9% interest. Why? Because you're borrowing less money. There's less interest for a 0% offer to save you. That doesn't mean empty your emergency fund to make a car deal work. It means your actual down payment belongs in the calculations. And if you're using a trade, account for its equity consistently in both offers. A trade isn't free money. It's an asset you're handing over to the dealership. Here's another twist. What if you plan to pay the loan off early? Our first comparison assumed you made every scheduled payment for five years. But if you take the rebate and pay off a simple interest loan much sooner, you will pay substantially less interest. That can change the winner again. Maybe you really wanted a cash deal, so you took a finance deal so you could get a bigger dealer discount to add to that rebate. And so, you intended to either write one check to pay it off entirely the moment your payment book arrived in the mail, or you're going to let the loan go a max of 90 days. In that case, just take the $5,000 rebate. There's no need to even waste your time with the math. If you do take financing in any of the examples that I provided here today, don't build your plan around, I'll just refinance it later. A future rate isn't guaranteed. Neither is your future approval. The deal could make sense under terms you can actually get today. Also, watch the loan length. 0% for 36 months and regular financing for 72 months are very different payment commitments. The longer loan may look friendlier each month while costing you a bit more overall. The shorter loan may save money but require a payment your household cannot comfortably handle. You need both answers. What does this cost in total? And can I afford the required payment? 0% doesn't make an unaffordable vehicle suddenly become affordable. Now let's get to what you need to say to the dealer. Please send me two itemized written offers on this exact stock number. One with the promotional financing and one with the rebate I qualify for using standard financing. Show the selling price, dealer discount, each rebate, taxes, required fees, out-the-door total, down payment, amount financed, the APR, loan term, and total of payments. Identify exactly which incentives cannot be combined. That request does something very useful. It turns a sales presentation into a comparison that you can check using a calculator. You can get a bank or credit union pre-approval, too. You need a real alternative rate, not whatever number somebody uses to make their preferred offer look better. And confirm you qualify for the promotional rate. An advertisement isn't a loan approval. Before signing, check the final lending disclosures against your comparison. Now, one last trap. The dealer says, good news, you got 0%. Then your contract picks up $2,000 of products you didn't ask for. 0% interest on an unwanted $2,000 purchase still costs you $2,000. Check the amount financed. Make sure every product is something that you chose. And keep shopping the vehicle price. A special rate doesn't tell you whether another dealer would sell that same vehicle for less money. This is why we start with written out-the-door offers and make dealers compete. Of course, the rate matters. The price matters. The rebates matter. The winner is the complete deal that works for your budget and costs less under your actual plan. If you can do this homework yourself, well then, by golly, do it. If collecting offers, challenging fees, negotiating prices, and sorting through financing options sounds a bit overwhelming, that's why we have professional car buying coaches to help you. Visit thehomeworkguy.com to learn about a hassle-free car buying service. I'm Kevin Hunter, the Homework Guy. Before you choose 0% or the bigger discount, make both offers answer the same question. How many of my dollars will this deal actually take? Then, let the math help you pick out the winner.