Automakers, particularly American ones, are feeling the pinch of a sluggish economy and sky-high gas prices. To help break free from their sales funk, many are offering zero- or low-interest rate financing, or cash rebates. With a little bit of number crunching, you can determine which financing perk works best for you.

Our slumping economy is causing bumper-to-bumper pain in the auto industry. Except for alternative energy and fuel efficient cars, sales are slumping. To boost sales, auto makers are offering rebates and low-interest finance packages. Before you take advantage of these money-saving opportunities, compare the two offers side-by-side.

Interest rate vs. rebate

Zero or low-interest rate financing refers to the interest rate on your car loan. Many of these types of loan packages vary, with different introductory periods tied to the low interest rates. Whenever you see large print for a financing package, be sure to check the small print, too. There you'll discover the details about how a sweet deal can suddenly turn sour.

Qualifying for a low-interest car loan depends entirely on your credit history. Whether you borrow from a car dealer, bank, or credit union, you'll only get the best rate if you have sterling credit. Take a look at your credit report and make sure that there are no mistakes, such as erroneously reported late payments.

Cash-back rebates can range from $500 to $2,500. These are particularly popular among American manufacturers who are offering them as a method for reviving slumping sales.

Evaluating the offer

Finding the best deal will involve some number crunching. If you make a side-by-side comparison, you can figure out how much money you'll spend during the life of the loan for both options. For the rebate, subtract the dollar amount that the auto manufacturer will give you from the purchase price; then, calculate the total cost of the auto loan using conventional financing. For the low- or zero-percent interest financing, simply calculate the total cost of the loan.

The final figure for each method should determine exactly which route you'll choose. There are a number of on-line calculators that can help you arrive at a decision; otherwise, you can always visit with a loan officer at your local bank or credit union. They'll be happy to run the numbers for you, especially if it allows them to make a plug for their own services. You could ask the finance department at your car dealership to run the numbers, too, but their figures will include an extra mark-up for the auto loan package.

Generating new auto sales in a slumping economy is a tall order. To meet the challenge, auto manufacturers are dangling different kinds of financing perks for car buyers. If you're comparing a rebate to low interest rate financing, crunch the numbers to find out just how much you can expect to pay for the entire loan. The final figure should steer you in the right direction.