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Understanding Car Rebates and Incentives

Rows of cars at a car dealership

Dealer incentives are everywhere. You’ve probably heard them on the radio, seen them on the TV, and noticed the balloons and signage at the car lot. Car dealers have tried-and-true financing and pricing offers meant to entice you into buying a new car. You can save thousands of dollars off the standard price, but not all offers are equally advantageous. Become familiar with the types of offers, and the terms and conditions that can make or break your purchase before you head to the dealership.

What Types of Incentives Do Dealerships Offer? 

As you begin to research buying a car, you will encounter two types of incentives. Customer incentives are offered by the dealer directly to you, the buyer. Factory-to-dealer incentives, also called manufacturer incentives, are passed along by the manufacturer to the dealer to help sell certain makes and models. These incentives may not be offered directly to you, but you can take advantage of them by negotiating the price or extras for your car.

Here are two of the most common offers and how they work:

  • Low- or no-interest financing. These deals might be presented as 0% interest, low annual percentage rate (APR), or low-interest introductory offers. They typically offer interest rates from 0% to 5%, if you have the excellent credit required to qualify. If you are eligible for a very low interest rate, it’s unlikely you’ll be able to negotiate any other discounts on the price of the car. So, while you may pay the asking price for the car, you won’t pay much, if any, interest.
  • Rebates, customer cash, and bonus cash. Dealers have many ways of promoting “cash” incentives – but be sure to read the fine print. Usually, this cash is applied to your down payment, or it can be applied to the finance price of a lease. There may also be conditions applied to certain offers. For example, you may qualify for a “loyalty bonus” if you can prove you are buying the same make of car you already own. Sometimes cash offers require that you finance the loan through the manufacturer’s finance company – which means you’ll have to accept the interest rate they offer you. 

Compare Costs:

Often, promotions and incentives cannot be combined, so it’s important to compare costs when determining your best option. Before accepting an incentive or special financing, calculate the associated savings—both on your monthly payments and over the life of the loan. Here is an example comparing a cash incentive and 0% financing for a vehicle with a price of $25,000: 

  option 1:
cash incentive
option 2:
0% financing
Cash incentive $3,000 $0
Total borrowed:
(purchase price minus cash incentive
or down payment if applicable)
$22,000 $25,000
Interest rate 1.99% 0%
Monthly payment $357.31 $384.62
Total you pay:
(over the life of the loan)
$23,225.15 $25,000.00
  • Zero-percent financing: A car that costs $25,000 at 0% interest with a 65-month loan has a monthly payment of about $384.62. 
  • Cash incentive: If the dealer offers a $3,000 cash incentive, the price is lowered to $22,000. With a pre-approved 1.99% interest rate, your monthly payment on a 65-month term is estimated to be $357.31.

In this scenario, the cash incentive with a 1.99% financing is more cost effective than the 0% financing because the discount provides greater savings than the 0% interest rate. Your savings potential may vary, depending on the details of the offer and the interest rate of your proposed loans.

Don’t Worry, You Have Options

There are many resources to compare dealer incentives so you can research and understand your pricing and financing options before you ever step foot on a car lot – or reach out through a dealer website. Having a good understanding of the terms and conditions associated with incentives gives you power for negotiating and getting the best price available. And if you sign on for financing you’re not happy with – or you have in the past – you can  refinance with DCU

Please note, membership is required to accept a DCU vehicle loan.

This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.