Many car dealerships offer special incentives with the intent of enticing you to purchase a car. The incentives are usually in the form of rebates, a low interest rate loan, or a low interest rate loan with a short term. Carefully determine which option is best suited for you by evaluating the monthly payments and interest paid indicated by the examples that follow.

     A dealership offers a $1,000 rebate in lieu of a 2.9% interest rate for a $15,000 vehicle. The special interest rate is only valid for a 24-month period. Therefore, the rebate will be compared utilizing a two-year loan at 8% for a loan of $14,000 ($15,000 minus the $1,000 rebate). The monthly payment will then become $633.18 for a total vehicle cost of $15,196.32 ($633.18 multiplied by 24-months). Utilizing the low 2.9% interest rate will result in a monthly payment of $644.05 for a total vehicle cost of about $15,457.20. The lower interest rate appears to be more appealing, but you will spend more for the vehicle when compared to receiving the rebate for the 24-month loan. A rebate offered in lieu of a lower interest rate may not always be the best choice. For example: the same loan, but for a 36-month period. The 2.9% interest rate would then yield a monthly payment of $435.56 for a total vehicle cost of $15,680.16, while the 8% loan with the rebate would yield a monthly payment of $438.71 for a total vehicle cost of $15,793.56. The better choice would then be to pick the 2.9% interest rate.

     You should factor in the options that allow you the lowest monthly payment and the lowest total vehicle cost. Also, keep in mind that some credit unions or banks may not include fees associated with a car loan, while a dealership may include additional fees. The result will be a higher loan amount and a higher monthly payment.

     Inquire about the fees and expenses associated with the terms of a car loan. Some companies will waive several fees (such as: registration fees, loan-processing fees, documentary stamps, among several other fees). If the fees are not waived, then they will be integrated into the loan amount that will increase the monthly payments. To better understand the effects of the fees, compare a 48-month loan for a 15,000 car. Company #1 offers a 7.25% interest rate with no processing and documentary stamp fees, while Company #2 offers a 7% interest rate with a processing fee of $75 and a documentary stamp fee of $52.50. The loan amount for Company #1 remains $15,000 with a monthly payment of $360.87, while the loan amount of Company #2 increases to $15,127.50 with a monthly payment of $362.19. The monthly payment for Company #1 is $1.32 lower for a total savings of $63.36. As you can see, the effects of extra fees can have an impact upon the price of the vehicle, therefore compare.


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