Choosing between auto loans and rebates

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

In an ideal world, you would be able to take the dealer rebate and receive a low-interest rate for financing, but that isn’t always the case. Those with very good credit can get both, but the less credit-fortunate sometimes have to settle for one or the other.

When financing, you’ll generally have the option of taking an auto loan from a dealer or finding one at a bank, credit union or other lender. Those dealer promotions can be enticing — such as no payments for a year — but they are usually just a gimmick to get you in on the loan. After the initial promotion runs out after a year, the interest rates usually rise to make up for the yearlong lack of payments. Instead of falling for the promotion, go for low rates or cash-back rebates.

Compare wisely

Use the APR, or annual percentage rate, to compare and gauge what you’ll pay in interest. But the rate is only one small piece of the puzzle; you’ll need to compare all the numbers to really calculate the cost of the vehicle. Finding a low interest rate can really save money, but is it better to take the rebate?

Deciding which one to take depends on the situation. The rebate will reduce the overall balance of the loan while low financing will lower the monthly payment. If the loan rate is low enough, then it will probably beat out the rebate. But if the loan rate is a bit higher, taking a manufacturer rebate might be a better bet. In order to compare, use a car rebate versus low-interest calculator.

Shop auto loans first

The best and easiest way to finance is to shop for the auto loan before shopping for the car. Many lenders will now preapprove those with decent credit for a certain loan amount. That gives you a good starting point for car shopping and leaves you thinking only about the price instead of worrying about how much financing will cost.