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Decoding Car Deals: Lower APR (Annual Percentage Rate) or Rebate – Which Saves You More?

Updated: Jul 24


giving money for a car key

When buying a car, you’re often faced with an intriguing choice: Should you go for a lower Annual Percentage Rate (APR) on financing or snag that tempting rebate from the dealer? Each option has its perks, and knowing their advantages can steer you towards a smarter financial decision:


Lower APR (Annual Percentage Rate)

  • The annual interest rate you pay on your car loan.

  • Lower APR means less interest paid over the loan's life, reducing the car's overall cost.

  • Beneficial for longer financing periods.

  • A 1% reduction in APR on a $25,000 loan over five years can lead to significant savings. For example, at 7% APR, the total interest paid over the life of the loan is $4,701.80. When the APR is reduced to 6%, the total interest paid drops to $3,999.20. This 1% reduction in APR saves you approximately $702.60 in interest over five years.


table with values

Rebate:

  • A discount applied directly to the car's purchase price.

  • Reduces the amount you need to finance.

  • Can lower your monthly payments and the total interest paid.

  • Example: A $2,000 rebate on a $25,000 car reduces the financed amount to $23,000.


How to Decide:

  • Compare the total cost of the car with each option.

  • Calculate the total amount paid over the loan term with the lower APR versus the amount saved with the rebate.

  • Use online calculators or consult with a financial advisor to determine the best choice for your financial situation.


Ultimately, whether you choose the lower APR or the rebate depends on your budget, loan terms, and long-term financial goals. Consider all factors to make the best decision for your situation.

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