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 structure their incentives differently. Before signing buying a new car, be sure the rebate will actually save you money.

What is a rebate on a car?

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.

But since rebates are offered by manufacturers, you will need to go to a dealership that works directly with the manufacturer to qualify. You may also need to select a certain trim, usually one of the higher-end options, in order to get a rebate.

How auto rebates work

Rebates are special promotions that offer buyers a few thousands dollars off the price of the car. This doesn’t impact your purchase price — you can and should negotiate with the dealer before discussing rebates — but it will lower the amount you pay for a vehicle.

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.

Is an auto rebate a good idea?

Auto loan rebates are worth looking into if they are available. Rebates are applied to your down payment, your closing costs or your total loan amount. In some cases, your total cost to own could be lowered by several thousand dollars.

However, you shouldn’t purchase a vehicle simply because of a rebate. In most cases, the selection of vehicles available for a rebate will be limited, and most rebates are restricted to new vehicles — and often, the higher-cost trims of those new vehicles. The draw of a rebate could tempt you to overspend on a car that doesn’t suit your needs or budget.

How to get an auto rebate

Unlike 0 percent financing, car rebates don’t have any set criteria. If you pick a model and trim with a rebate, you qualify. Search manufacturer deals on new cars — rebates are typically advertised alongside lease deals and special interest rates.

An auto rebate can be sent directly to you, but it can also be part of your down payment. This means you need to finance less overall, which can save you money upfront and over the life of your car loan. In some states, you may even be able to have the rebate applied to the purchase price before taxes, though you’ll need to confirm your state’s rules when requesting a rebate.

Auto rebate vs. low-interest financing

Rebates and low-interest financing, such as a 0 percent APR deal, save you money 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.

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.

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. 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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