What Is a Rebate on a Car?

This manufacturer incentive could be used as a down payment or as a direct payment to you.

Ben Luthi | 

Jun 8, 2022 | 3 min read

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If you're shopping for a new vehicle, you may notice that some cars come with rebates. The vehicle manufacturer offers these incentives to generate interest from potential buyers, though they may come with conditions attached.

Here we address some of your possible questions, including: what is a rebate on a car, how does it work, and what are some of the other incentives you might see?

What Is a Rebate on a Car?

A manufacturer's rebate is a financial incentive, typically expressed as a flat dollar amount. Depending on the model, season, and other factors, rebates typically range between $500 and $5,000.

Depending on the rebate terms, you can use the cash as a down payment for the vehicle or to reduce the car's sales price. If you already have money for a down payment or a trade-in, you could potentially request a check from the manufacturer instead. In some states, it's even possible to use a car rebate to lower the amount you owe in sales tax on the purchase.

However, some rebates may come with caveats. For example, you may need to finance the purchase with the manufacturer's financing company, or you may need to belong to a specific group (such as recent college graduates or military members).

Rebate promotions may last anywhere between a couple of weeks and a few months, so there may be pressure to respond quickly if you see one. However, you should also consider other aspects of the car-buying process before making a final decision or jumping on the first incentive you see.

Pros and Cons of Car Rebates

Before you take advantage of a manufacturer rebate, it's ideal to make sure you understand both the benefits and drawbacks.

Pros:

• Reduce your loan amount: whether you can use the rebate as a down payment or to cut the sales price, it means you don't have to borrow as much to finance the purchase. This arrangement reduces your monthly payment and can save you money in the long term
• Upfront savings: manufacturers may offer other incentives that can result in more long-term savings, but if a rebate means you can keep your down payment money, you'll have that cash to use however you want

Cons:

• Limited vehicle options: cash rebates may only be offered on certain models, limiting your choices for a new vehicle. If you're set on a particular model, you may find that its manufacturer isn't currently running a rebate promotion
• May not maximize savings: some manufacturers (and even dealers) may offer other incentives that can help you accrue more savings than a cash rebate, either upfront or over a longer term

Other Incentives You May Receive

If you're planning to buy a new vehicle, you may qualify for other incentives offered by the car's manufacturer or dealer.

One common option is 0% annual percentage rate (APR) financing, which is typically reserved for car buyers with excellent credit. These offers go through the manufacturer's financing company. While it won't give you any value upfront, it can provide ongoing savings in the form of a lower monthly payment. In some cases, you may have the option to choose between a cash rebate or a 0% APR promotion, but you can't take advantage of both. If you do get to choose, run the numbers and also consider how the rebate is applied. If you can get a check, it could be worth opting for the rebate—depending on your needs—so you have that money in hand even if the long-term savings of a 0% APR are a bit higher.

If you're thinking about buying a used car, some dealers may offer discounts on select models, but these may not be available on new vehicles.

Ben Luthi

Ever since I read a personal finance book in college, I've been hooked. I've covered just about everything from credit card rewards and auto financing, to student loans and cryptocurrency. I've worked in banking, auto finance, and financial planning, and I've been writing about all of it since 2013. My top priority is to give people the information they need to make the best financial decisions for themselves.