Purchasing a new car can be stressful. There’s a lot to consider, from finding the right make and model, researching where to buy, and financing your purchase. Luckily, there are numerous options for car financing and car deal offers. If you are considering financial offers, there are two main types: cash back and financial. 

Cash back offers give you a set amount of money back after you purchase a car. Financial offers involve using a loan to pay for the vehicle. Explore the basics of cash back vs. financial offers to help you decide which is right for your financial situation. 

What is a Cash Back Offer?

A cash back offer is an incentive often used in car deals. Manufacturers create and authorize dealerships to use these rebates to persuade consumers to buy their vehicles over other options. 

When you use a cash back offer, you can receive a specified amount of money back if you purchase the car. Typically, you will receive a check from the dealer for the cash back rebate amount. You can also apply the cash back amount to the vehicle downpayment. 

Cash back offers can be an effective way to entice buyers, and they are often used in conjunction with other incentives, such as low-interest rates or special financing deals. However, it is a good idea to read the fine print before taking advantage of a cash back deal, as restrictions or conditions may apply. 

What is a Financial Offer?

A financial offer is made on the car’s total value, which typically includes the purchase price, monthly payments, down payment, interest rate, and other potential fees. Dealerships provide financial offers through in-house financing, although they often partner with banks, credit unions, or other lenders. Some types of financial offers that you can expect include low-interest financing and 0% APR loans.  

Remember that a financial offer is not binding, meaning you can always negotiate for a better deal. Dealerships typically prefer you to finance your vehicle purchase through their finance division rather than paying for the car outright because they make money on the interest you pay. Understanding this can help you negotiate a better price and lower interest rates if you qualify for financing through the dealership. 

Why Would I Choose a Cash Back Offer?

Incentives and rebates are standard fixtures in today’s car-buying landscape. Many manufacturers offer cash back rebates to sweeten the deal for buyers. So why would a buyer opt for a cash back offer? In some cases, it can be more advantageous than low financing rates. 

For example, consider a $25,000 car with a $3,000 cash back rebate offer. Without the rebate, you may need to finance the car’s total purchase price ($25,000). If you obtain a loan at 5% for 60 months, your monthly payment would be about $436.50 (excluding loan fees, sales, tax, or down payment). 

(5% x $25,000= $1,250, $1,250+$25,000=$26,250, $26,250/60 months = $437.50 per month)

However, if you take the rebate and put it toward a down payment, you would only need to finance $22,000 at 5% for 60 months. Using the rebate would result in a monthly payment of about $385. 

(5% x $22,000= $1,100, $1,100+$22,000=$23,1000, $23,100/60 months = $385 per month). 

This example highlights how opting for a cash back rebate can lead to significant savings on your monthly car payments. 

Another reason to choose a cash back offer is to give you more flexibility in negotiating the car’s purchase price. There is often wiggle room when negotiating a car’s final cost. If a cash back offer is on the table, you may be able to get the dealer to lower the car’s purchase price, which can save you even more money.

Why Would I Choose a Financial Offer?

When it comes to car deals, there are a lot of factors to consider. One of the most important is the financial offer. Negotiating an offer can be tricky, but remember that the dealer is trying to make as much money off you as possible. 

Here are a few things to keep in mind when negotiating a financial offer on a car deal:

  • Know the Value of the Car 

Don’t let the dealer tell you what the car is worth. Do your research by visiting trusted sources like Kelley Blue Book, Consumerreports.org, or Edmunds.com to find out how much the car is worth. That way, you have a starting point for negotiating the car’s purchase price.

  • Don’t be Afraid to Walk Away 

Don’t be scared to leave if the dealer isn’t budging on the price. There are plenty of other dealers who would be happy to work with you. Always walk away if you feel pressured or manipulated into signing a financing deal with a dealership. 

  • Get Everything in Writing

Once you’ve reached an agreement with the dealer, ensure everything is in writing. Documentation prevents any misunderstandings down the road and locks your financing agreement. The dealer must abide by the loan term and interest rate you agreed on with a written contract. 

Which Should You Choose?

If you’re trying to decide between a cash back offer and a financial offer on a car deal, there are several things you’ll need to consider. First, think about how much money you’ll get back. A cashback offer may seem like a lot of money at first glance, but it’s important to remember that the dealer applies it to the car’s total purchase price. 

In contrast, a financial offer will lower your monthly payments. Depending on the terms of the financial offer, you could save hundreds or even thousands of dollars over the life of the loan. 

Think about a few things when making your decision:

  • The Interest Rate

A cash back offer usually has a higher interest rate than a financial offer. You’ll need to look at how much you will be paying over the life of your loan and, most importantly, your monthly payment amounts to make sure you can afford them. Use a car loan calculator to estimate different interest rate scenarios and determine your payments to make your decision. 

  • Your Future Plans 

If you’re planning on selling the car or trading it in for a new one within a few years, a cash back offer may be the better choice. However, if you’re planning on keeping the car for a long time, a financial offer could save you money in the long run with a lower interest rate.

  • Your Credit Score

You can generally obtain better financing offers with excellent credit. A credit score over 650 generally results in lower-interest financing because this range is considered good to excellent. However, if you have a lower credit score, you may face higher interest rates or have trouble obtaining financing. In this case, you might weigh your savings with a rebate versus financing offers to determine the best option.

Choose the Right Auto Financing Option for Your Needs

When it comes to car deals, there are a lot of factors to consider. Incentives, rebates, and financial offers can all play a role in the final price of a car. Do your research and understand your options before heading to the dealership. That way, you can ensure you’re getting the best deal possible.Ultimately, there is no right or wrong answer when choosing between a cash back offer and a financial offer; it all depends on your individual circumstances and financial needs. Check out SmartReadz.com for more automotive, lifestyle, and health tips.