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Cash Back or Low Interest Calculator

Compare cash back offers vs. low interest rate financing options

When making a large purchase, you often have the choice between taking a cash back rebate and financing at a higher interest rate, or skipping the rebate for a lower interest rate. This calculator helps you determine which option saves you more money over the life of the loan.

Purchase Details

20.0% of purchase price

Option 1: Cash Back Offer

Option 2: Low Interest Rate

Quick Scenarios

Comparison Results

Enter purchase details to compare options

How Cash Back vs. Low Interest Comparison Works

Cash Back Option

Immediate Benefit: You receive cash back upfront, reducing your out-of-pocket cost.
Higher Interest: You typically pay a higher interest rate on the remaining loan balance.
Usage Options: Cash back can be applied to down payment, invested, or used to pay other debts.
Best When: The cash back amount is significant relative to the purchase price, or when you can invest the cash at a higher return than the loan interest rate.

Low Interest Option

Lower Cost: You pay less interest over the life of the loan.
No Upfront Cash: You don't receive immediate cash back, but save on interest payments.
Predictable Savings: Interest savings are guaranteed, unlike investment returns.
Best When: The interest rate difference is significant, the loan term is long, or you prefer guaranteed savings over potential investment gains.

Factors to Consider

Financial Factors

  • • Interest Rate Difference: Larger differences favor low interest options
  • • Loan Term: Longer terms amplify interest rate differences
  • • Cash Back Amount: Higher amounts favor cash back options
  • • Investment Opportunities: Available returns on cash back
  • • Other Debt: High-interest debt to pay off with cash back

Personal Factors

  • • Risk Tolerance: Investment returns are not guaranteed
  • • Cash Flow Needs: Immediate cash vs. lower monthly payments
  • • Financial Discipline: Will you actually invest the cash back?
  • • Tax Implications: Investment gains may be taxable
  • • Emergency Fund: Cash back can boost emergency savings

Example: Car Purchase Decision

Scenario: $25,000 Car Purchase

Purchase Details

Car Price:$25,000
Down Payment:$5,000
Loan Term:5 years

Options

Cash Back:$2,000 at 6.9% APR
Low Interest:0% cash back at 2.9% APR

Comparison Results

Cash Back Option
Loan: $18,000 at 6.9%
Monthly: $356
Total Interest: $3,360
Net Cost: $21,360
Low Interest Option
Loan: $20,000 at 2.9%
Monthly: $358
Total Interest: $1,480
Net Cost: $21,480
Cash Back Saves $120

Frequently Asked Questions

When is cash back typically the better option?

Cash back is often better when the rebate amount is substantial (typically 5% or more of the purchase price), when you can invest the cash at a higher return than the loan interest rate, or when you have high-interest debt to pay off. It's also beneficial if you need immediate cash flow relief.

What if I just keep the cash back instead of investing it?

If you keep the cash back without investing it or using it productively, the low interest option usually becomes more attractive. The calculator assumes you'll use the cash back wisely - either to reduce your loan balance, invest it, or pay off higher-interest debt.

How do taxes affect this decision?

Cash back rebates are generally not taxable income, but investment returns from investing the cash back may be subject to capital gains taxes. This can reduce the effective return on your investment, making the low interest option more attractive. Consider your tax situation when making this decision.

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