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How to evaluate an auto rebate

Couple negotiates at an auto dealership
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When the time comes to explore financing for a new car, you will have several options for promotional finance details, including rebates. Rebates give you money back on your purchase, which will lower your total loan amount. However, manufacturers and dealers all structure their deals differently. Before signing an auto loan, consider which incentive makes the most sense for you. 

What is an auto loan rebate? 

An auto loan rebate is an incentive that gives you cash back in exchange for purchasing a car. This serves as motivation for you to purchase the vehicle in the specific scenario that the dealership has control over. 

Rebates typically only last a few months, and you will have to meet specific criteria in order to qualify — for instance, you may have to select a certain type of car or apply for financing through the dealership. Not all rebates are equal, and you may need to compare rebates at several dealerships to find the best deal. 

Is an auto rebate a good idea? 

Auto loan rebates are worth looking into if they are available. The main benefit is that rebates will be applied to your down payment, your closing costs or your total loan amount. All of these options will lower the total cost of your loan. In some cases, your total cost to own could be lowered by several thousand dollars. 

However, you shouldn’t purchase a vehicle simply because a rebate is offered. In most cases, the selection of vehicles available for a rebate will be limited, and most rebates are restricted to brand-new vehicles. The draw of a rebate could tempt you to overspend on a new car that is outside of your needs or budget. 

Auto rebate vs. low-interest financing 

Rebates and low-interest financing, such as a 0 percent APR deal, both save you money, but they do so differently. A rebate gives you a flat amount of money, which is usually applied to either your down payment or your closing costs. Low-interest financing, on the other hand, cuts down on your ongoing interest and could lower your overall monthly payment. 

In general, an auto rebate is likely to save you the most money on your car overall; even though you will pay interest on your loan, it will be interest on a much lower amount. A 0 percent APR offer will also save you money over time, but the primary benefit is a lower monthly payment. 

People with good credit may be able to get the best of both worlds — taking a rebate from the dealer and finding a low interest rate from an independent auto loan lender. 

How to get the best deal on your car 

Rebates aren’t the only factor in getting the best deal at the dealership; consider any special deals as a starting point. 

1. Shop the loan first

The best way to save money while financing a car is to shop around first for the loan. Take the time to compare different loan rates and enter potential terms into an auto loan calculator to ensure you are choosing the right option. 

Ideally, lenders will approve you for a total amount to be financed before you go shopping. By coming prepared with a financing offer, you can better compare what the lender is offering you. 

2. Minimize your debt

One of the best ways to prepare for a potential loan is to ensure that you have no debt hanging over you. Lenders will likely not accept applications from drivers with a high debt-to-income ratio. Before heading to the dealership, pay off as much debt, like credit cards, as you can. 

3. Do the math

A low interest rate is undeniably attractive. But always keep in mind that the interest rate is only one of many factors and numbers that go into the overall cost of your new vehicle. You will also need to consider ongoing maintenance needs, insurance costs and gas mileage. 

The bottom line 

The key to knowing if a rebate is a wise financial choice comes down to how much the incentive could save you. If you have spotted a rebate, do your due diligence. Look for rebates on car models that you were already considering and understand how that rebate will be applied. You can use a car financing calculator to compare how much you will save over time with different financing options. 

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Written by
Rebecca Betterton
Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase a car.
Edited by
Student loans editor