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How Do Car Rebates and Dealer Incentives Work?

October 13, 2022

Auto Refinance

As Low As
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Dealer incentives, rebates, and other promotions are everywhere. You’ve probably seen ads on TV, a website, or signage at a car lot promoting them. Maybe you’ve heard about them on the radio or a music streaming service. But how do dealer incentives and rebates work? Auto dealers have tried-and-true financing and pricing offers meant to entice their customers into purchasing a new car. With these promotions, shoppers can potentially save thousands of dollars off the standard price, but not all offers are equally advantageous.

If you are in the market for a new vehicle, familiarize yourself with the types of car dealer incentives, and the terms and conditions, that can make or break your purchase before heading to an auto dealership.

What Types of Incentives Do Car Dealerships Offer?

Once you begin researching vehicles and start your car-buying experience, you will likely encounter two types of incentives. The first is customer incentives, which are offered by a dealer directly to buyers. The other is factory-to-dealer incentives, also called manufacturer incentives. These incentives are passed from the auto manufacturer to their dealers to help sell certain vehicle makes and models. Factory-to-dealer incentives may not be offered directly to buyers, but these promotions can still benefit shoppers, as they often lead to lower interest rates, rebates, and other types of savings.

Take a look at two of the most common car dealer incentives 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, car dealer 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 $3,500 $0
Total borrowed:
(purchase price minus cash incentive
or down payment if applicable)
$19,000 $22,500
Interest rate 3.99% 0%
Monthly payment $326 $346
Total you pay:
(including interest, as applicable)
$21,159 $22,500
  • Zero-percent financing: A car that costs $22,500 at 0% interest with a 65-month loan has a monthly payment of about $346.
  • Cash incentive: If the dealer offers a $3,500 cash incentive, the price is lowered to $19,000. With a pre-approved 3.99% interest rate, your monthly payment on a 65-month term is estimated to be around $326.

With So Many Car Dealer Incentives, You Have Options

It's worth your time to explore car dealer incentives to find out what's available before you ever step foot on a car lot, or reach out through a dealer website. Some of the biggest sales events happen annually, so with a little planning and patience you can maximize rebates and incentives.

Having a good understanding of the terms and conditions associated with car dealer 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 have in the past, you can refinance with DCU. With more than a million members nationwide, Digital Federal Credit Union is a not-for-profit financial cooperative owned and operated by its members. Focused on serving members, rather than stockholders, we provide great service and refinance terms

Please note that membership is required to accept a DCU Auto Loan. Visit our membership eligibility page for more information.

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 professiona