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Calculate and analyze your financial information.
Enter the vehicle price and your two competing offers.
Comparing the total cost of each option over the loan term.
Everything you need to know
When shopping for a new car, most dealerships present you with a choice that sounds appealing but mathematically complex: accept a cash rebate that reduces your purchase price, or accept a promotional low-interest rate financed through the dealership. The decision between these options determines whether you'll save thousands or lose thousands over the life of the auto loan—yet many buyers make this choice impulsively without doing the actual math.
This choice matters enormously because the financial impact compounds over the entire loan term. A £25,000 car financed over 5 years has massive differences in total cost depending on whether you pay 0% interest with a reduced purchase price versus 6% interest on the full price. The difference between choosing wisely and choosing poorly can easily exceed £1,000-£3,000 in total loan cost.
The mathematical comparison isn't straightforward because you're comparing two different scenarios: In one, you borrow less money at a higher rate; in the other, you borrow more money at a lower rate. Your total interest paid depends on both the interest rate AND the amount borrowed, creating a trade-off that's simple for a calculator to evaluate but difficult for a human mind to intuit. This guide explains both options, when each makes sense, and how to use the calculator to make the optimal choice.
Using our calculator is straightforward:
Enter Vehicle Purchase Price
Input Available Cash Back Offer
Input Dealership APR (Low Interest Offer)
Enter Your Bank/Standard APR
Select Loan Term
Review Comparison Results
M = P × [r(1 + r)^n] / [(1 + r)^n - 1]
Where:
Total Cost (Cash Back) = (Vehicle Price - Cash Back) + Total Interest
Total Interest = (Monthly Payment × Number of Months) - Principal
Total Cost (Low APR) = Vehicle Price + Total Interest
Total Interest = (Monthly Payment × Number of Months) - Vehicle Price
Scenario: £25,000 car, £2,500 cash back, 0% dealer APR vs. 5.5% bank APR, 5-year term
Option A: Cash Back Route
Price after rebate: £25,000 - £2,500 = £22,500
Bank APR: 5.5%
Monthly rate: 5.5% ÷ 12 = 0.458%
Months: 60
M = £22,500 × [0.00458(1.00458)^60] / [(1.00458)^60 - 1]
M = £22,500 × 0.00420
M = £94.50/month
Total payments: £94.50 × 60 = £5,670
Interest paid: £5,670 - £22,500 = £3,170
**Total cost of car: £25,000 + £3,170 = £28,170**
Option B: 0% Financing
Full price: £25,000
Dealer APR: 0%
Monthly payment: £25,000 ÷ 60 = £416.67/month
Total payments: £416.67 × 60 = £25,000
Interest paid: £0
**Total cost of car: £25,000**
Comparison:
Scenario: £30,000 car, £4,500 cash back offered, 2.99% dealer APR offered, 5.9% bank APR available, 5-year term
Option A: Accept Cash Back, Finance at Bank Rate
Financed amount: £30,000 - £4,500 = £25,500
Monthly payment at 5.9%: £483
Total interest: £28,980 - £25,500 = £3,480
Total cost: £30,000 + £3,480 = £33,480
Option B: Decline Cash Back, Use 2.99% Dealer Financing
Financed amount: £30,000
Monthly payment at 2.99%: £556
Total interest: £33,360 - £30,000 = £3,360
Total cost: £30,000 + £3,360 = £33,360
Comparison:
Analysis: When the cash back is substantial and dealer APR only moderately lower than bank APR, the options are often close. In this example, monthly payment differs significantly (£483 vs. £556 = £73/month), which might favor cash back if cash flow matters. However, total cost favors low APR slightly.
Scenario: £28,000 car, £2,000 cash back offered, 0% dealer APR, 6% bank APR, 5-year term
Option A: Accept Cash Back, Finance at Bank
Financed: £28,000 - £2,000 = £26,000
Payment at 6%: £500/month
Total interest: £30,000 - £26,000 = £4,000
Total cost: £28,000 + £4,000 = £32,000
Option B: 0% Dealer Financing (No Cash Back)
Financed: £28,000
Payment at 0%: £467/month
Total interest: £0
Total cost: £28,000
Comparison:
Analysis: Zero percent financing is almost always superior when available—it eliminates all interest expense. The £2,000 cash back doesn't come close to offsetting £4,000 in avoided interest. Take 0% financing unless the cash back is exceptionally large (typically 3x+ the financing savings).
Scenario: £22,000 car, £3,500 cash back, 3.99% dealer APR vs. 8% bank APR, 4-year term
Option A: Cash Back + 8% Bank Financing
Financed: £22,000 - £3,500 = £18,500
Payment at 8%: £442/month
Total interest: £21,216 - £18,500 = £2,716
Total cost: £22,000 + £2,716 = £24,716
Option B: 3.99% Dealer Financing
Financed: £22,000
Payment at 3.99%: £509/month
Total interest: £24,432 - £22,000 = £2,432
Total cost: £22,000 + £2,432 = £24,432
Comparison:
Analysis: With significant gap between dealer and bank APR (8% vs. 3.99%), the low APR dealer offer wins despite higher monthly payment. The £3,500 cash back is valuable, but the 4% interest rate difference compounds significantly over 48 months.
Scenario: Same offer, different term choices
Car: £25,000 price, £2,000 cash back available, 1.99% dealer APR, 6% bank APR
36-Month (3-Year) Term:
Option A (cash back, bank financing):
Option B (low dealer APR):
Difference: £160 (favor cash back)
60-Month (5-Year) Term:
Option A (cash back, bank financing):
Option B (low dealer APR):
Difference: £400 (favor cash back)
Analysis: Longer terms favor cash back relative to low APR because the interest savings from accepting low rate compounds over more months. At 3 years, options are close (£160 difference); at 5 years, cash back advantage grows (£400 difference). Term length affects which option is optimal.
Scenario: Poor credit situation forces high bank APR
Car: £18,000, £1,000 cash back, 4.99% dealer APR, 11% bank APR (poor credit), 5-year term
Option A: Cash Back + 11% Bank Financing
Financed: £17,000
Payment: £360/month
Total interest: £21,600 - £17,000 = £4,600
Total cost: £18,000 + £4,600 = £22,600
Option B: 4.99% Dealer Financing
Financed: £18,000
Payment: £341/month
Total interest: £20,460 - £18,000 = £2,460
Total cost: £18,000 + £2,460 = £20,460
Comparison:
Analysis: With poor credit forcing 11% bank rates, dealer financing at 4.99% is dramatically superior (7% better rate). This illustrates why improving credit before car shopping matters—the difference between 11% and 6% bank rate would be £4,000-£6,000 in additional interest.
Dealerships rarely allow combining both incentives—you must choose one. Taking cash back disqualifies you from dealer financing; accepting dealer financing means forgoing the cash rebate. This is the core trade-off: upfront savings vs. long-term rate benefit.
Cash back comes from manufacturer profits/marketing budget. Low-rate financing is also subsidized by manufacturers (dealers typically don't have that much pricing power). Both represent manufacturer discounts—which you take is your choice, but you usually can't have both.
Getting pre-approved at your bank before visiting the dealership gives you: (1) actual rate you'd pay, (2) negotiating leverage with the dealer, (3) ability to properly compare cash back vs. low APR offers. Without pre-approval, you're guessing at your "standard" rate.
Your credit score determines which offers are available to you. Excellent credit (700+) typically qualifies for best dealer rates (0-1.99%); good credit (650-700) qualifies for moderate rates (2.99-4.99%); fair credit (600-650) may not qualify for special rates. Improving credit before car shopping can make the difference between 0% and 6% financing.
These are different: an offer with lower monthly payment might have higher total cost (longer term compounds interest). Use total cost as your decision metric, not monthly payment. However, if monthly cash flow is genuinely constrained, even total-cost-higher option with lower payment might be necessary.
Disclaimer: This calculator provides a comparison based on your inputs and assumes consistent interest rates throughout the loan term. Actual financing may differ based on: credit approval, specific lender terms, final purchase price negotiation, extended warranties or additional products added at dealership, early payoff changes, and refinancing opportunities. This is not financial advice. Always get written quotes from both dealers and banks, understand exact terms including any prepayment penalties, and consult with a financial advisor if you have specific questions about your situation. Dealer incentives are time-limited and subject to manufacturer change.