What Are Car Rebates?

Q: What does rebate mean on a car?

A rebate on a car is an incentive from the manufacturer that gives you cash back when you purchase a vehicle.

Q: How does a car rebate work?

Manufacturers offer car rebates as enticements to get buyers to choose certain makes and models. These rebates may be offered at dealerships that work directly with the manufacturer, and typically, they’re offered for a certain amount of time. A rebate may give you $500 to $5,000 back. The rebate is often applied as a down payment to the auto loan you’re taking out to buy the car.

Q: Can you use a car rebate as a down payment?

Yes. In fact, car rebates are often applied as a down payment for a vehicle. In some cases you may be able to request that the rebate be sent to you as a check, though this is less common.

Austin KilhamUpdated March 15, 2023

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If you’re in the market for a new car, naturally, you’re looking for the best deal possible. One of the ways that you could possibly save thousands of dollars is through a manufacturer’s rebate. Car rebates give you money back on your new car purchase. If you’ve been wondering, what is a rebate on a car?, here’s what you need to know.

What Is a Rebate on a Car?

Car rebates give you cash back for buying a new car. Rebates are offered by auto manufacturers as a way to entice buyers to purchase a certain car make or model. You can typically find car rebates at dealerships that work with the car manufacturer offering them. Car rebates may range from about $500 to $5,000. As noted, rebates are for new vehicles, not used cars.

How Do Car Rebates Work?

Auto rebates are money back offered by an auto manufacturer. So how do rebates work? Typically, they’re good for a certain amount of time, and you’ll need to take advantage of the rebate in the specified time frame. A rebate is often applied as a down payment on a vehicle. As you’re car loan shopping and considering different types of auto loans, it’s helpful to know that using the rebate as a down payment can help reduce the amount of money you’ll need to borrow to pay for the car. Once the rebate is applied, you’ll typically pay taxes on the full sale price of the car. However, in some states, the rebate amount is subtracted from the selling price of a car, which could reduce the amount of sales tax you’ll pay. Check the laws in your state.

Do Car Rebates Impact Your Auto Loan?

A rebate can have an impact on the size of your loan since it can reduce the amount of money you need to borrow. As mentioned, some rebates are automatically applied to your down payment on the car. How down payment size affects your auto loan is that the more money you put down, the smaller the loan will be, and the less average car loan interest you’ll pay over time.

Car Rebates vs Other Incentives

In addition to rebates, manufacturers may offer other incentives to help encourage a new car purchase. For example, they might give you delayed loan payments for a period of time, longer warranties, or free oil changes. Manufacturers typically have different requirements you’ll need to meet to qualify for the incentives they offer. For example, in order to get them, you might have to maintain a certain credit score. There are some other rebates that are less well known than cash back. If they apply to your situation, be sure to ask about them. These include:

Military rebates
Loyalty rebates if you’re purchasing the same brand of car brand you’ve bought in the past
Competitor rebates if you’re switching to a new brand of car
Rebates for college students who are graduating
Rebates for educators

Special Financing

Instead of car rebates, some manufacturers may offer special financing as a form of incentive. For example, this might include 0% APR car loans, which allow you to borrow money interest free for a certain period of time. This could reduce how much you’ll pay, and it could end up being one of the ways to lower your car payments that you may want to explore.Even if manufacturers offer both rebates and special financing, many of them don’t allow you to take advantage of both. If you need to choose between a rebate and a special financing deal, be sure to do the math to determine which option will save you the most.

Pros and Cons of Car Rebates

Car rebates could help you save money. But they do have a few drawbacks, so it’s a good idea to weigh the advantages and disadvantages.

Pros of Car Rebates

The biggest benefit of a car rebate is that it may lower the total cost of buying a car by thousands of dollars. It could also reduce the amount of interest you’ll pay over time.

Cons of Car Rebates

Rebates are offered for new vehicles, and they may apply only to the more expensive models. As a result, even with the rebate, you might end up paying more than you would if you choose a more basic model that doesn’t have a rebate. Don’t overspend just to get a rebate.Additionally, if the manufacturer offers other incentives as well, such as 0% APR, they may make you choose just one, as discussed. If this is the case, be sure to figure out which incentive offers you the greatest savings.

Getting a Car Rebate

Car rebates are usually advertised for particular makes and models. If you know what kind of car you want to buy, do an online search to see if the manufacturer is offering a rebate or any other incentive for it. If so, find out if there are any requirements you’ll need to meet. For instance, you might have to have a high credit score to qualify for 0% APR financing.

Alternatives to Car Rebates

Auto rebates aren’t the only way to save money on a new car. For instance, when you’re financing the vehicle, you could make a larger down payment on the loan to reduce the amount you’ll pay in interest. Keeping your credit strong could also help you save. Lenders offer car loans with lower interest rates to borrowers with good credit scores. Making all your payments on time and reducing the amount of debt you carry may help you qualify for lower rates. Finally, when you finance a car, you may be able to save money down the road by refinancing your auto loan to get a new loan with a lower interest rate. You can look into this option if interest rates drop or your credit improves. Recommended: How Soon Can You Refinance a Car Loan After Purchase?

The Takeaway

An auto rebate could save you thousands of dollars when you buy a new car. Just make sure it’s the best choice for you. For instance, don’t opt for a more expensive car just to get a rebate. Also, if there is more than one incentive, and you need to choose between them, do the math to see which one could save you more. Another option to keep in mind if you already have a car loan is auto loan refinancing. If you qualify for an auto loan with a lower interest rate, your monthly car payments could be lower. Lantern can help you explore your car loan refinancing options so that you can compare offers from different lenders.

Frequently Asked Questions

What does rebate mean on a car?

How does a car rebate work?

Can you use a car rebate as a down payment?

Photo credit: iStock/skynesher

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About the Author

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.

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