The 0 financing vs cash rebate question has a plain answer: take whichever choice costs you less in total over the life of the loan. Which one that is depends on how much you finance, for how long, and the rate you could borrow at without the offer. The offers themselves change from month to month, and the current ones are on our finance deals page. This guide shows you how to run the comparison yourself, with one worked example and plain arithmetic.
The method works the same for any new vehicle. If you are shopping a truck, start with the Ram finance deals page; for an SUV, the Jeep finance deals page or the Dodge finance deals page; for a minivan, the Chrysler finance deals page.
Key Takeaways
- A manufacturer offer is often a choice: a low promotional rate through the manufacturer's finance company, or a cash incentive taken with a standard rate or a cash purchase.
- Compare the total you pay over the term, not the monthly payment.
- A low rate is worth more the bigger the amount financed, the longer the term and the higher the rate you would otherwise pay.
- The cash incentive tends to win when your standard rate is low, the term is short or you pay cash.
- In our worked example, giving up a $6,000 incentive to take 0 percent works out to about 3.5 percent a year. That is an example, not a quote.
- Every rate is on approved credit. Apply for financing to learn the standard rate you would actually get.
How Manufacturer Offers Are Usually Set Up
On a new vehicle, the manufacturer often puts two doors in front of you and lets you walk through one.
Door one is a promotional rate. The loan is arranged through the manufacturer's finance company at a rate below what a lender would usually charge, sometimes as low as 0 percent. It is on approved credit, and it often applies only to certain models and certain terms.
Door two is a cash incentive. Depending on the brand and the month it may be called a cash rebate, a cash discount or Consumer Cash. It comes off the price. You then finance the smaller amount at a standard rate, through the manufacturer's finance company, a bank or a credit union, or you pay cash.
The catch with a low rate is not hidden in the rate. It is the incentive you give up to get it. Sometimes an offer lets you combine the two, and the terms of each offer say so. When they cannot be combined, the cash you walk away from is the real cost of the cheap loan.
One detail matters before you compare our own listings. Posted prices already include any Consumer Cash; prices are plus GST and PST. So ask our team to show you which incentives a posted price already includes, and whether choosing a promotional rate on that vehicle changes the price you start from.
What Decides Which One Wins
Three numbers decide it, plus one question about your bank account.
- The amount financed. A low rate saves interest on every dollar you borrow, so the bigger the loan, the more it is worth. The incentive is a fixed amount whatever you borrow.
- The term. The Financial Consumer Agency of Canada puts it plainly on its page about shopping around for auto financing: "The longer the loan term, the lower your payments. You'll end up paying more in interest with a longer loan term." A low rate removes most of that interest, so it gains value on a longer term.
- Your standard rate. This is the rate you would pay if you took the incentive and financed the rest. The higher it is, the more the low rate saves you by comparison.
- Whether you have the cash. If you pay cash, there is no loan for a low rate to improve, and the incentive is simply money off.
A Worked Example With Round Numbers
Every figure in this section is an example, not a quote, and not a current offer. Taxes and fees are left out to keep the arithmetic readable.
Say a truck comes with a choice: 0 percent financing for 72 months, or a $6,000 cash incentive. The amount you would finance before any incentive is $60,000. On a real truck the price you start from is less any applicable incentives, so check our current pricing here before you plug in your own figures. Here is what each path costs over the full term, worked out with the standard loan payment formula that loan calculators use. The Vehicle Lease or Loan Calculator from Innovation, Science and Economic Development Canada lets you try your own figures.
| Path (an example, not a quote) | Total paid |
|---|---|
| 0 percent on $60,000 for 72 months: $833.33 a month | $60,000 |
| $6,000 off, $54,000 at 7 percent for 72 months: $920.65 a month | $66,287 |
| $6,000 off, $54,000 at 3 percent for 72 months: $820.46 a month | $59,073 |
| $6,000 off, paid in cash | $54,000 |
Read the table this way. At a 7 percent standard rate, the low rate wins by about $6,287, because the interest on $54,000 over six years, about $12,287, is more than double the incentive. At a 3 percent standard rate, the incentive wins by about $927, and the monthly payment is lower too. Paying cash, the incentive wins outright: you pay $6,000 less than the 0 percent path's total. Every one of these figures is an example built on a price before tax and less any applicable incentives, not a figure from a current offer.
The tipping point in this example sits at about 3.5 percent. Put another way, giving up the incentive to take 0 percent costs you the same as borrowing the smaller amount at about 3.5 percent a year for 72 months. If the standard rate you are approved for is above that, the low rate wins here; below it, the incentive does. Change the price, the incentive or the term and the tipping point moves, which is why you run your own numbers.
Tax can tip the answer, so ask how your incentive is applied. Manitoba's Retail Sales Tax Bulletin No. 012 treats the two kinds of incentive differently. A manufacturer's cash rebate does not lower the RST: the dealer collects it on the selling price before the rebate, even when you assign the rebate to the dealer. A discount that lowers the selling price does lower it, because RST applies after the discount. Before you finish the comparison, ask our team how the incentive on the vehicle you want is applied on the bill of sale. Our guide to taxes when buying a vehicle in Manitoba covers the rest.
Run the Numbers on Your Own Deal
- Get both choices on the same vehicle, the same price and the same term, in writing. Comparing a 72 month promotional loan with a 48 month standard loan tells you nothing.
- Find your real standard rate. Apply for financing so you are comparing against the rate a lender would approve for you, not a guess. Every rate is on approved credit, and nothing is approved until the lender says so.
- Multiply each monthly payment by the number of months, add any down payment, and compare the totals. The smaller total wins.
- Think about how long you will really keep the loan. The incentive is worth its full amount on day one. The savings from a low rate arrive month by month, so if you trade the truck or pay the loan off in two or three years, you collect only part of them.
- Count your trade. A trade lowers the amount you finance, which shrinks what a low rate is worth. See what your vehicle is worth with our instant cash offer and put that number into both columns.
If you are still deciding what payment fits, our guide on how much truck you can afford in Manitoba is about the budget side, and our guide to car financing in Manitoba is the wider read.
Pay Cash or Finance?
If you have the money, paying cash takes the incentive and ends the conversation about interest. In our example the cash buyer's total was the lowest of the four paths, the whole incentive below the 0 percent path.
It is still worth a second look before you write the cheque, for three reasons:
- Your cushion. A Manitoba winter can bring a furnace, a set of tires and a cracked windshield in the same month. Paying cash should not leave you without a reserve.
- Where the money is already spoken for. If harvest has just put money in the account, remember that seed, fertilizer and fuel come due in the spring. The same goes for a contractor whose slow season is coming.
- What the money could do instead. If you carry a debt at a higher rate than the loan you are offered, paying that down first may save more. And if you could take either door, financing at the low rate while your cash sits in savings only beats paying cash with the incentive when the money earns more, after tax, over the term than the incentive you gave up. With a large incentive, that is a high bar.
Your credit history is part of what a lender weighs when it sets the rate it approves, and our post on the credit score needed to finance a truck in Canada is the place to start.
FAQs
Is 0 financing really free?
The interest is, but the choice may not be. When taking the low rate means giving up a cash incentive, that incentive is the cost of the loan. In our worked example, an example and not a quote, giving up a cash incentive worth one tenth of the amount financed to take 0 percent for 72 months costs the same as borrowing the smaller amount at about 3.5 percent a year.
Which is better, a low rate or a cash rebate?
The one with the smaller total cost over the term. A low rate tends to win on a large amount, a long term and a high standard rate. A cash incentive tends to win when your standard rate is low, the term is short or you pay cash.
Can I get the low rate and the cash rebate together?
Sometimes. Each offer's terms say whether it can be combined with another. Ask our team which current offers apply to the vehicle you want, and whether any of them can be combined.
Should I pay cash or finance a truck?
Paying cash costs the least when it lets you take a cash incentive, because you get the money off and pay no interest. Finance instead when paying cash would leave you without a reserve, when the money is needed elsewhere, or when it is paying down a debt at a higher rate.
Does a manufacturer rebate lower the sales tax in Manitoba?
No. Manitoba's Retail Sales Tax Bulletin No. 012 has the dealer collect RST on the selling price before a manufacturer's cash rebate is applied, so the rebate does not reduce the RST.
The Bottom Line
A low rate and a cash incentive are two prices for the same truck. Line them up on the same vehicle and term, multiply out every payment, and pick the smaller total. When the loan is big and long and your standard rate is high, the low rate tends to come out ahead; when you borrow less, for less time or pay cash, the incentive does. Browse our new Ram 1500 inventory, check the finance deals pages for what is current, see what your trade is worth, and apply for financing so the comparison runs on your real rate, on approved credit.
Tyler Dunn, Dunn Ram Trucks, Portage la Prairie
