I'm buying a new car this weekend and not really sure I understand the financing options that are available to me. Hoping someone with more fluency around this stuff can check my math and logic and let me know if my thinking & numbers make sense.

TL;DR: I'm trying to understand how loans work over the long term & find the optimal balance between cash payments vs. loan amounts.

Let's say the cost of the car is \$24,000.

My two options are:

1. Getting a \$1,500 manufacturer incentive for the cost of the car (bringing the price down to \$22,500) and borrowing through them: \$22,500 at 2.99% apr for 66 months.

or

1. Instead taking the other incentive, which is the full cost of the car (24,000) at 0% apr for 66 months.

With Option 1, I think the breakdown is this:

Amount of loan needed: \$24,000

Amount of loan needed after \$1,500 dealer incentive: \$22,500

Total Interest paid at 2.99% apr for 66 months on a \$22,500 loan: \$1,928.70

Total paid: \$24,428.70

With Option 2, the cost is \$24,000, and 0% apr for 66 months is … \$24,000.

So all other things being equal, I'm paying \$428.70 more with Option 1. Is that right?

Now…does that logic break down if the cost of the car drops?

Changing assumptions, let's say I intend to put \$15,000 cash towards the purchase price of \$24,000, making the potential loan amount be \$9,000.

With Option 1:

Amount of loan needed: \$9,000

Amount of loan after \$1,500 dealer incentive: \$7,500

Total Interest paid at 2.99% apr for 66 months on a \$9,000 loan: \$642.90

Total paid: \$8142.90

With Option 2:

the cost is \$9,000, and 0% apr for 66 months is … \$9,000.

In this scenario, if I take advantage of Option 1, I'm coming out ahead \$875.10. Is that right?

Finally, is my best move here to balance my cash down to amount borrowed such that I wind up paying an amount in interest equal to the \$1,500 dealer cashback incentive? So:

Cost of car: \$24,000

Cost of car after \$1,500 dealer incentive: \$22,500

Upfront cash payment of \$5,000 of the available \$15,000 = \$17,500 to borrow

Total Interest paid at 2.99% apr for 66 months on a \$17,500 loan: \$1,500.10

Total paid: \$22,500

Then use the remaining \$10,000 in cash I have to cover ~35 monthly payments of \$288.

If you take the time to think through this and give me advice, you're a saint!

TIA,

-X

submitted by /u/x_l_c_m