What Is A Rebate On A Car?

What Is A Rebate On A Car?
What Is A Rebate On A Car?
Education
| Oct 07 2022
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You Guide to Dealership Incentives: Car Rebates, 0% Financing, and More

Car dealers love to offer financial incentives to motivate potential buyers. Rebates, discounts, and 0% financing are all used at various times to get buyers in the doors. So what exactly are these incentives, and are they worth seeking out?


Let’s talk about rebates and other sales incentives used by car dealers.


How do rebates work?

Car rebates are a very specific type of sales incentive. A rebate is a return of cash to a customer for agreeing to buy or lease a car. Rebates are different from discounts because the money is not immediately taken off of the sale price. Instead, money is returned to you at a future point in time. 


Rebates can be offered by either the manufacturer or by the dealership. If the rebate is offered by the manufacturer, you may go to any dealer to get that rebate. But if the rebate is dealer specific, you do not have that flexibility.


Rebates are commonly used when one particular model is lagging in sales, as it will increase demand for the model. This is one way for dealers to push sales in a certain direction.


Rebates can vary greatly, from as little as $500 to as much as $5,000. They are usually on a strict timeline, typically lasting about two weeks. They are much more commonly used by popular brands such as Honda and Toyoata, and are used much less frequently by luxury brands.


It is common for buyers to use the rebate money as a down payment. It’s important to note that a rebate is not a discount, because you will still be taxed on the list price of the car. Some states do allow rebates to be deducted from the list price, so check your state laws.


There are some great advantages to cash rebates: 


  • You can use the rebate as a down payment.
  • It doesn’t affect the car loan APR you will be offered.
  • It can help you afford a new car that might otherwise be out of your budget.


But there are some disadvantages to rebates as well:


  • They only apply to certain models, so you have a limited selection.
  • They only apply to new cars, so certified pre-owned cars are not an option.
  • You cannot combine them with other incentive deals, such as 0% financing.


If a rebate is being offered on a car that you are interested in already, then that’s great! But if it’s swaying you away from what you truly want then be sure to think your decision through thoroughly. If the car that has the rebate offer costs $10,000 more than the car you originally wanted, and the rebate is for $5,000, you may not be making out as good as you may think.



What other sales incentives are used by dealerships?


Delayed Loan Payments

Another common incentive for dealers to offer is delayed loan payments. This allows customers to not make payments for the first few months that they have the car. It’s important to check the fine print on this though–you may still accrue interest during this time.


0% Financing

If you have exceptional credit (typically above 780) you may qualify for 0% financing. This means that when you make payments, you are only required to pay towards the principal of your car. This will allow you to pay your loan off faster and save more money overall. Again, this is only an option for people with stellar credit, and it may only apply to certain models.


Lifetime Warranties

Another incentive that dealers may use is a lifetime warranty. By throwing in a lifetime complimentary powertrain warranty, your car may be covered for any big issues for as long as you have the car.


Can you combine incentives?

Some dealerships may offer combination incentives, such as a lifetime powertrain warranty and 0% financing. But they will not offer you both a rebate and 0% financing–you will need to pick which is more beneficial for you and your situation.



How can I get the best deal on a new car?


Research.

When you are looking to get a new car, you want to be as informed as possible. If you know what specific car you want, be sure to research it ahead of time. Know what features you are looking for and what you can live without, and have a realistic idea of what the price will be.


Also research the dealer that you are planning on visiting. Do they have good customer reviews? Do people seem to have positive experiences, or do they have a reputation for inflating prices and trying to upsell? It’s good to have a few dealers in mind so that you can shop around.


Prepare your finances.

The most important thing you can do to get the best deal possible on a new car is to make sure your finances are in good shape. Are you paying cash or are you looking to finance? If you are paying cash, be prepared for the total cost of the car: the list price, taxes, and fees. Paying cash always gives you a little more room to negotiate, but it’s good to be prepared for any extra costs that might come your way. 


If you are looking to finance your new car, take the time to ensure your credit score and debt to income ratio are looking good. These are the two most important factors that lenders will consider when reviewing your loan application. Make sure your credit score is in fighting shape by taking the following steps:


  • Request a copy of your credit report. Review it for any errors or mistakes, such as missed payments and inaccurate balances. Report any errors to the credit bureau, as fixing these errors can have a huge impact on your score. 
  • Focus on paying down loans that have a high credit utilization ratio (the ratio of your outstanding balance vs your credit limit). Paying these down will help your overall credit utilization ratio and improve your score.
  • Request higher credit limits. Requesting higher limits will help improve your credit utilization ratio as well.
  • Commit to full and on time payments. Making full and on time payments is a major contributor to a healthy credit score.
  • Resist opening other accounts. Any other accounts that you may be looking to open, such as another credit card, will trigger a hard inquiry on your credit. This can negatively affect your score in the short term, so wait until after you purchase your new car to do so.


It’s also good to have a realistic idea of what you can afford every month. The general rule is to spend less than 10%-15% of your monthly income on your car payment, and less than 20% of your monthly income on your total transportation expenses (this includes gas and maintenance). Make sure that this works with your budget though–it’s always a good idea to sit down and work through the numbers to determine what will work with your personal finances.


Get financing first.

Before you step into a dealership, get pre-approved with a few different lenders. When you go to a dealership, it can be very confusing. You will try to negotiate the price of your new car, the fees, and the value of your trade in. If you do not have to think about negotiating financing as well, it will help you to stay focused. If the dealer wants you to use their financing, you already have numbers that they will have to beat.


Take advantage of the incentives.

Whether it is a rebate or 0% financing, look around to see what incentives are out there. Don’t compromise what you want for an incentive, but it can certainly sweeten the deal. Do the math to see just how much money these incentives can save you.


Negotiate.

When you settle on your car, it’s time to negotiate. It’s important to keep your eyes on the most important factor: the overall car price. Dealers often use monthly payments as a barometer for affordability, but don’t fall for it. They can make the offer seem more attractive by focusing on low monthly payments, but this often means you will pay more in the long run for the car. Instead focus on the price of the car and the fees.


Read the print before you sign.

When you have negotiated all the details and secured your financing (again, try to use a lender outside of the dealer to get the best rate), be sure to read the sales agreement thoroughly before signing anything. Make sure you are aware of all of the fees and terms that are outlined, and be prepared to walk away if it doesn’t seem right to you.



Those are our tips for buying a new car and how to take advantage of dealer incentives.


Buying a new car can be overwhelming, but doing your research and taking advantage of dealer incentives can really pay off.


If you have a new car that you have already financed, you may be able to get a better car loan APR by financing. Get started with Auto Approve today to get a free quote–you could save hundreds (if not thousands!)

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