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Low APR vs. Cash

There is a wide range of financing alternatives for customers in search of a new automobile. Of course you can pay cash, but for many if not most that choice involves factors such as the annual percentage rate and a “cash back” incentive. Cash back is a popular enticement that dealerships offer in order to encourage people to buy a new vehicle. While these offers seem like a good deal, potential buyers should weigh other factors to determine if the cash-back incentive makes the most financial sense. Here are a few common options explained:

Cash-Back Program:
Cash-back incentives typically are offered by the car manufacturer as a cash-back reward for people who buy a new car. For example, a consumer goes to buy a new 2013 Hyundai Sonata from a Phoenix Hyundai dealer, agrees to a financing plan they will receive a $500 ‘cash-back’ incentive to use as part of the cars down payment.

APR:
A new car is a major purchase, and few people pay cash for it. Most consumers obtain a loan to buy a new car or finance the purchase through the manufacturer or a financing department. A car loan, like any loan, comes with interest rates, known as an annual percentage rate, or APR. For example a consumer could get a 2013 Hyundai Genesis Coupe for a low APR of 1.9% for 36 months, 2.9% for 48 months, 3.9% for 60 months, and 4.9% for 72 months .

Low APR or Cash Back?
Some car manufacturers offer a combination cash back and a low interest rate. Some of these offers are either/or, meaning the consumer may choose either the cash-back reward or the low interest rate, while others offer both cash back and low interest.

Calculation:
If a new Hyundai Phoenix consumer is faced with the decision of purchasing a new car with a cash-back incentive or a low APR, they must perform a few calculations. There are several automobile websites that offer calculators that help with this task. For example, if you’re offered $5,000 cash back or a 1.0 percent APR on a 48-month loan for purchase of $24,230—with no trade-in or cash down—you’ll save $13 per month by choosing the low financing over the cash-back offer.

Cash Purchase vs Low APR:
Another option for Hyundai car buyers is to skip financing altogether and pay for a car in cash. Buying a car in with cash saves you money in the long run as you don’t have to pay interest, but it also takes a lot of money out of your pocket. As long as you aren’t taking money out of your emergency funds or selling other assets to purchase the car, buying a car with cash is often a good option.

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