How 10% Apr Can Beat 0% Apr


A 10% or 8% loan at your credit union or bank can often beat one of those special 0% or 1% rate sales at a dealership. How? Such rate sales usually offer the choice of the low interest rate or a cash rebate, sometimes called "cash back" or "cash allowance." Many times you can save by taking the cash rebate and using it as part of your down payment and financing a smaller loan at your credit union or bank. Check out the following comparisons. Remember you are interested in the overall cost of the loan, not just one aspect.

How 10% Apr Can Beat 0% Apr
  0% 10% 10% 10%
Cost of new car $15,000 $15,000 $15,000 $15,000
Less equity in trade $3000 $3000 $3000 $3000
Less rebate $0 $2000 $2000 $2000
Months financed 24 24 36 48
Amount to finance $12000 $10,000 $10,000 $10,000
Finance charge 0 $1074 $1610 $2174
Monthly payment $500 $461.40 $322.50 $253.63
Total cost of financing $12,500 $11,074 $11,610 $12174
Savings at 10% APR 0 $926 $390 $174)

 

How 8% Apr Can Beat 1% Apr
  1% 1% 1% 8% 8% 8%
Cost of new car $15,000 $15,000 $15,000 $15,000 $15,000 $15,000
Less equity in trade $3000 $3000 $3000 $3000 $3000 $3000
Less rebate $0 $0 $0 $1500 $1500 $1500
Months financed 24 36 48 24 36 48
Amount to finance $12000 $12000 $12000 $10,500 $10,500 $10,500
Finance charge $125.28 $186 $247 $916 $1344 $1803
Monthly payment $505.22 $338.50 $255.14 $475 $329 $256.31
Total cost of financing $12,125 $12,186 $12,247 $11,146 $11,844 $12,174
Savings at same length of loan     $56 $979 $390 ($56)