You found the car. Now the dealer gives you a choice: 0% APR for 60 months, or $3,000 cash back. Most people grab the 0% because "free money" sounds better than "some money." Sometimes that's right. Sometimes it costs you thousands.
The good news: there's one number that decides it, and you can figure it out before you walk into the dealership.
The Rule in One Sentence
Take the rebate, finance the rest at the best rate you can get somewhere else, and add up every payment. If that total is less than the price you'd pay at 0%, the rebate wins. If it's more, take the 0%.
Example 1: The 0% Wins
You're financing $35,000 for 60 months. The dealer offers 0% or a $3,000 rebate. Your credit union pre-approved you at 6.5%.
| 0% APR | $3,000 rebate + 6.5% | |
|---|---|---|
| Amount borrowed | $35,000 | $32,000 |
| Monthly payment | $583 | $626 |
| Total paid | $35,000 | $37,567 |
60-month loans. Payments rounded.
The rebate saves $3,000 up front, but the interest on $32,000 at 6.5% adds up to about $5,567. The 0% deal saves you $2,567.
Example 2: The Rebate Wins
Same $35,000 car, but this time the rebate is $5,000, and your credit union offers 4.5%.
| 0% APR | $5,000 rebate + 4.5% | |
|---|---|---|
| Amount borrowed | $35,000 | $30,000 |
| Monthly payment | $583 | $559 |
| Total paid | $35,000 | $33,557 |
Now the rebate is big enough, and the outside rate low enough, that the rebate saves $1,443, and the monthly payment is lower too.
The Break-Even Rate for Any Rebate
Here's the shortcut. For a $35,000 loan, this is the highest outside rate at which the rebate still beats 0%. If your pre-approval is below the number, take the rebate. If it's above, take the 0%.
| Rebate | 60-month loan | 72-month loan |
|---|---|---|
| $1,000 | 1.15% | 0.96% |
| $2,000 | 2.34% | 1.95% |
| $3,000 | 3.58% | 2.99% |
| $4,000 | 4.88% | 4.08% |
| $5,000 | 6.24% | 5.21% |
| $6,000 | 7.66% | 6.40% |
Assumes $35,000 financed and the same loan length for both options. Your break-even will shift with your price and term. The calculator finds your exact number.
Notice the pattern: small rebates almost never beat 0%. A $1,000 or $2,000 rebate only wins if you can borrow at 1–2%, which is rare. Once rebates reach $5,000 or more, a good credit union rate often wins.
Watch for the Short-Term Trap
Many 0% offers only apply to shorter loans, like 36 months, while the rebate lets you finance for 60. On a $35,000 car, 0% for 36 months is about $972 a month. The rebate plus 6.5% over 60 months is about $626. The 0% deal still costs less overall, but only if you can comfortably make the bigger payment every month. If $972 squeezes your budget, the cheaper deal on paper isn't the right deal for you.
How to Decide in 3 Steps
- 1. Get pre-approved first. A bank or credit union pre-approval gives you a real outside rate to compare. Without it, you're guessing.
- 2. Get both offers in writing, with the same price, loan length, and any fees.
- 3. Compare total paid, not monthly payment. Plug both into the 0% vs Rebate calculator and it shows the winner and your exact break-even rate.
Frequently Asked Questions
Is 0% financing better than a cash rebate?
Only when the rebate is small compared with the interest you'd pay on an outside loan. On a $35,000, 60-month loan, a $3,000 rebate beats 0% only if you can borrow elsewhere at under about 3.6% APR. A $5,000 rebate beats 0% at any rate under about 6.2%. Bigger rebates and cheaper outside loans favor the rebate.
Can you get 0% APR and the cash rebate together?
Usually not. Automakers typically offer one or the other on the same vehicle. Occasionally a smaller bonus cash offer can be combined with special financing, so ask the dealer to show every incentive on the car in writing.
What credit score do you need for 0% financing?
It varies by lender, but 0% offers are usually reserved for borrowers in the top credit tier. If your score is lower, you may be offered a higher rate instead, so get a pre-approval from a bank or credit union before you shop.
Does a cash rebate lower the sales tax?
Often not. In many states, sales tax is charged on the price before a manufacturer's rebate, so the rebate cuts what you borrow but not the tax. Check your state's rules.