Understanding Car Rebates & Incentives
What is an incentive?
- All incentives are price reductions offered by the factories either
to increase sales on current slower-sellers or to reduce
excess inventory.
- Incentives can take the form of cash back, low-rate financing,
or a financing deal and cash on the same model. National
customer incentives tend to be in the $500 to $2,000 range.
The pricier the car, often, the bigger the incentive.
- Cash incentives can go directly
to the consumer or to the dealer. Some go either to the
dealer or the consumer, and that can vary regionally, It
can be left to the dealer's discretion, or the discretion of the regional
manager. Dealer incentives tend to apply to Japanese and European-made
cars, and American luxury vehicles. Rebates vary significantly by region.
Best time for incentives?
- For decades, new car model season arrived in fall, but now, new
model year basically lasts all year long. Late summer/fall
is still a time when dealers clear lots for the new models, and
a good time for incentives. "Carryover
allowances," special model-year-end allowances given to dealers
or consumers to clear out last year's inventory, are not
the rule anymore. Note: these allowances don't kick in
until the dealer actually has next-year's model on the
lot.
- Because new model season lasts all year, learn the 'life-cycle'
of the particular model. If a car's due for a major redesign
you may see incentives before or when the new-generation
or replacement model debuts. Some models have a 4-year cycle between
complete redesigns, with a 'freshening' every couple years, but each
maker and model is on a different schedule.
- Incentives tend to work
on the domino principal, leading to copy-cat actions between
competing makers and models. A rebate on a Chevy truck can
lead to similar deals on a rival Ford or Dodge model.
- Most rebates carry
an expiration date--usually in effect for 1-2 months. When
an incentive program expires, they don't necessarily renew or change
them right away. The time limit on incentive programs can create anxiety
for consumers: if you don't rush out NOW you won't benefit. Be calm:
often a rebate will return, or even be increased. Use discretion to take
advantage of hefty rebates that may expire. If a rebate
has been placed on a certain model for some time, good deals should stick
around.
What exactly is a customer incentive?
- These are generally the incentives
advertised on TV and radio, but to make sure you're informed,
always check the dealer and consumer rebates page on various
websites and manufacture websites before you buy.
- Customer incentives usually come as a choice of either
cash or a reduced financing rate--or a combo of both.
Customer rebate tends to be more publicized.
- They can be
given to special kinds of consumers; college grads, first-time
buyers, or repeat buyers, etc.
- They can be nationally-set,
but are more often regionally-specific.
Should I take the cash back or the cut-rate financing option?
- Add
up the full price of the vehicle at the special subsidized
financing rate.
- If the loan ends up costing less with the
incentive financing, then with the pay-out in cash--you
may want to choose that option.
- But you may also want to increase
your down payment, and then you should choose the rebate
money.
- Calculate both what you'll be paying each month under
each option, and how much you will spend overall. The
loan calculator makes this math very easy.
- Remember: do the
calculations for each and every car you're considering.
Taking the cash on a $20,000 car with a $2,000 cash rebate
may not be as good a deal as taking it on an $11,000 car with a $2,000
rebate.
- Also: many of the super deals such as 0% and 1% financing are
for a briefer 24- or 36-month term. This means stiffer
monthly payments. It saves money overall, but it's a bad
option if it's out of your monthly budget's reach.
- If you have the financial
freedom, go with what saves you most overall.
What exactly is a dealer rebate?
- Money given back to the dealer by the manufacturer to move certain
cars.
- Information about dealer incentives tends to be more
difficult to obtain, as well as more volatile time-wise,
and much more regionally-specific.
- Dealer incentives are
often offered in tandem with other incentives that depend
on the regional manager's specific judgement call.
- Don't become
too paranoid about less public dealer rebate info. The
factories offer them to heat up dealer sales contests to
move inventory locally, so most of the deals become public knowledge.
- A
tip: check the date the vehicle you want was actually manufactured.
If it's been in the showroom for 6 months or more, some kind
of dealer incentive may be placed on it. Dealers pay money to keep cars
on their lot (they are financed through a bank) especially after a car's
been on that lot for more than three months, and they have an increased
incentive to sell.
- Incentives can be listed for either the customer or
dealer --and either the dealer or the regional manager
decides which is best for the area.
- If you know about any
dealer incentive, those savings should be passed on to
you, the consumer.
Any other kinds of dealer incentives?
- Occasionally, there are special programs in place that offer dealers
unusual incentives.
- A manufacturer may want to help a new
dealership get on its feet, and establish a customer
base, and will offer them special sales rewards.
- The factory
may want a dealership to take more inventory, and offer
incentives to do so.
- Some programs give a dealer X amount
of dollars for selling a certain number of cars by the
end of the month, or even more money per car if they reach
a certain sales target. This encourages dealers to offer lower prices
at certain times of year or month to reach that targeted sales point.
- All
of the above incentives apply ON THE DAY OF DELIVERY. Buying
the vehicle on factory order could jeopardize the incentive, if it expires
before you actually get the car. Ask…
