auto

Does cash rebate lower car's resale value?

Tara Baukus MelloDear Driving for Dollars,
I've read that when a car manufacturer offers a cash rebate on a car it affects resale value, but I don't understand why. What do cash rebates have to do with resale value?
-- Peter

Dear Peter,
When an automaker offers a rebate, sometimes called a cash-back incentive, it is doing so because it is trying to make the car sell faster. The reasons vary. It may be because it has a redesigned version of that model coming out, or it may be that it is simply trying to boost sales to meet a monthly or year-end quota.

Regardless, the car is essentially being put "on sale" and offered at a discount. For a new car buyer, he is essentially reducing his rate of initial depreciation -- the amount that the car's value drops the moment you drive it off the lot.

However, for someone who already owns the same model, it decreases the value of his car if he were to sell it used or trade it in. This issue especially affects people who own newer used cars, since the desirability of owning that car used goes down when the price gap between the new version and the newer used version isn't as big.

Still, depreciation only affects you when you go to sell your car or trade it in. So, while it's a good idea to choose a car with strong resale value, don't worry too much about any current cash rebate or incentive on the new model unless you are getting ready to sell your current car.

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If you have a car question, email it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories. Follow her on Facebook here or on Twitter @SheDrives.

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