Advertisements in the classifieds these days show cheap car prices but most of them are prices after deducting the attractive cash rebate from motor loans. Why would banks give you a chunk of its profits? Well, no business is that generous and it is likely that you will cough up more cash when you sell the car.
I have created an Microsoft Excel worksheet to compare the cash outlay between the Cash Rebate scheme versus the traditional loan. It is rather difficult to decide as the key factor to a better utilization of your loan is to use your car for at least the loan period. Get the latest version of the tool here.
At the end of the day, it depends on a few key factors:
- Ownership trend - if you intend to keep your car for more than the loan period, go for the rebate by all means. You should forgo the rebate if you change your car every three years or less.
- Deep pocket - if you can pay for your car in full, forget the rebate … but in the case that you have a good investment instrument that give returns of more than the effective interest rate (click here to see my earlier post on computing EIR) , then get the rebate and invest the sum to make additional cash.
- Need to Loan - if you are going to for the traditional loan (eg. 2.8% flat) without any cash rebate, you should consider the rebate scheme as you may keep your car for a longer period than anticipated and that may result in some savings.
It is not an easy decision when you are tight on cash. Good luck!