Rebates on cars: How do they work?

Woman in a city looking at her phone and reading about rebates on carsImage: Woman in a city looking at her phone and reading about rebates on cars

In a Nutshell

Car manufacturers may offer rebates on cars sold at franchise dealerships throughout the year. These rebates often have specific eligibility requirements like financing through the automaker’s financing company or already owning or leasing a qualifying vehicle by the manufacturer. If you’re able to qualify for a rebate, it could save you a good chunk of change on the price of your vehicle.
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Are you thinking about buying a new car? By shopping around for rebates you’re eligible for first, you might be able to save yourself a pretty penny along the way.

Rebates are financial incentives offered by automakers in an effort to drum up sales or boost brand loyalty. These discounts could be a great way to potentially save thousands on a vehicle purchase.

Depending on the program, car rebates may be used as a cash discount or applied toward the down payment. In some cases, you may be able to qualify for a rebate plus another incentive such as a reduced annual percentage rate, or APR, which could save you even more.

What does it mean to get a rebate on a car?

Rebates on cars originate from automakers — not dealerships — and are passed on to buyers through new-car dealerships. Rebates may also be referred to as a purchase allowance, cash back or bonus cash.

Depending on the automaker’s guidelines on how the rebate may be used, it could be applied as a car down payment on the car or simply deducted from the purchase price.

Rebates are often short-term promotions that often last for around one month to three months. These and other new-car deals vary by manufacturer as well as by car make and model. You may also find that available offers can differ based on your location.

Keep in mind that you may not qualify for a rebate. Manufacturers may have special requirements such as financing directly through the automaker’s finance company (for example, Ford Credit or Toyota Financial Services), buying your car with cash, or already owning or leasing a car from the brand. You might also be limited to choosing a car within the dealership’s existing inventory. And some rebates are designed for specific groups of buyers, like recent college graduates, active-duty military members or first responders.

If you’re curious about available rebates, visit the automaker’s website and search for current offers. You may be asked to enter your ZIP code so you can see offers available at local dealers. You can also call your local franchise dealership to see which offers are available and learn more about any requirements you’ll have to meet in order to qualify.

Can you get rebates on used cars?

While rebates are typically associated with new-car purchases, some automakers will offer incentives on certified pre-owned cars from time to time.

These offers may include reduced interest rates or payment credits.

As with new-car incentives, rebates and other offers on certified pre-owned cars often come with specific requirements to qualify. An automaker may require you to get a loan through its finance company, and the offer may be limited to certain models. 

Is a rebate on a car better than an intro 0% APR offer?

Automakers often offer low or 0% APR incentives along with — or in place of — cash rebates. While a reduced interest rate isn’t the same as a rebate, it can still save you money in interest if you plan to finance the vehicle.

To qualify for 0% APR incentives, you’ll typically need to finance your purchase through the manufacturer’s finance company. It’s also worth noting that you’ll usually need strong credit to qualify for a promotional APR.

Some automakers may offer you a choice between a rebate to reduce your purchase price or a 0% APR offer.

At first glance, saving hundreds or thousands on the price of the car may seem like a no-brainer. But it’s important to run the numbers to see where you’ll truly save the most — use a handy online auto loan calculator to help.

Let’s say you’re planning to buy a $30,000 car and the automaker offers you the choice of 0% APR financing or a $1,500 rebate with a 6% APR over 60 months.

If you take the 0% APR offer, you’ll pay the purchase price on your vehicle with no interest. At the end of your loan, this means you’ll have paid $30,000 total for the car.

If you opt for the cash rebate instead, you’ll need to finance $28,500. Over the course of your 60-month loan term, you’ll end up paying $4,559 in interest for a total of $33,059 paid for the car.

While the cash rebate would save you money on the vehicle’s actual price tag, you’d end up paying more — about $3,059 extra — by choosing the rebate over the 0% APR offer.

What’s next?

If you’re thinking about buying a new car, it’s a good idea to do some research beforehand to find any rebates or other incentives on models you’re considering buying. Rebates on cars are a great way to potentially save money. Just be sure to read the fine print or ask your car dealer about qualification requirements or how the rebate works.

And remember that some of these offers may require you to finance your purchase through the automaker’s finance company. While this may still end up being the best deal, it’s always a good idea to shop around for financing beforehand and apply to get preapproved for a car loan if that’s an option. You may qualify for a better interest rate with a bank, credit union or online lender, plus getting preapproved can give you added flexibility when negotiating the car price.

About the author: Stephanie Colestock is a personal finance writer with a passion for helping readers take control of their money. If it has to do with planning for the future, getting out of debt, or even traveling the world on points… Read more.