Auto financing: Rebate or low-interest car loan?

Q: “Which is better to take when buying a new vehicle, the rebate or a low-interest car loan?”

—Anne Boudreau, Regina

A: The important thing is to choose the offer that provides the lowest overall cost at the end of the loan, including the purchase price and interest. Zero interest, or a number close to zero, is the crack cocaine of consumer financing, and automaker ads stress this to make the purchase of vehicles guilt-free. Between two deals with a similar overall cost—say, choosing between a large rebate or zero percent interest for six years—taking the rebate is the better strategy. The reason is the rebate is earned immediately in the form of a discount on the purchase price, whereas interest savings on a below-market-rate loan are earned over the life of the loan. If the vehicle is written off early or you want to sell it before financing is paid off, the customer with the rebate will be ahead.