Dealer vs. Financing with your Financial Institution

Sometimes we get so excited when purchasing a new car that we forget about interest rates and convince ourselves that we can handle a payment much higher than what the dealer originally quoted.

Consider all the options available to you. Is it better for you to finance at the dealer or to take a cash back option and finance with your financial institution?  The example below shows you that sometimes it does pay, in some cases a lot, to skip the 0.00% APR option!

Let’s say you have excellent credit and qualify for 0% interest financing for 60 months through the dealer or the dealer is offering a cash rebate of $4000 and you choose to finance the loan on your own at 1.99% for 60 months. The price of the car is $25,000.

Dealer Financing Financial Institution with Cash Rebate
Purchase Price $25,000 $25,000
Cash Rebate From Dealer
Balance of Loan $25,000 $ 21,000
APR 0.00% 1.99%
Monthly Payment $417 $367.99
Saved each month $49.01
Total after 60 months (5 years) $25,000 $22,079.45
Saved over the life of the loan $2,920.55

If you find a low-enough interest rate through your credit union, then you can actually beat the 0.00% APR financing. In this example, you can save almost $3,000 over the life of the loan by taking the rebate and financing it through your financial institution. The loan payment was also $49 cheaper per month!

*This is an example of a cash rebate offered through a car dealership. The rebate is for example purposes only.