How Does Cash Back Work When Buying a Car?

If you are in the market for a new car, an offer of cash back from a manufacturer provides an additional incentive for you to purchase a particular model. Cash back offers are sometimes referred to as new car rebates. Car buyers who understand how cash back offers work will achieve the maximum benefit from the available rebates.

Manufacturer Rebates

Cash back offers usually originate with the car manufacturer. The purpose of the offer is to promote the sales of cars sitting on dealer lots, so the dealers can order more cars from the manufacturer. The amount of the rebate is based on how well a particular model is selling and the manufacturer's estimate of how much cash will help move the cars off the dealer lots. For example, in March 2011, General Motors offered rebates of $5,000 on 2010 model year Chevrolet and GMC pickup trucks.

Cash Back or Down Payment

Although the rebates from car manufacturers are called cash back offers, car buyers rarely receive the cash. The money provided in a cash back offer is usually an additional down payment on the new car. A car buyer does have the option to receive the cash back amount as a check from the auto manufacturer. If you want the cash back as a check, tell the car salesman and he will make sure you complete the proper forms. If you intend to use the cash back as a down payment, the car dealer will credit the amount against the purchase price and file with the manufacturer to receive the money. This approach allows the car buyer to receive the immediate effect of the cash back.

Either/Or Offers

Car manufacturers sometimes combine a cash back offer with an offer for low rate financing. The car buyer can choose which offer to accept. Compare the two choices by having the dealer calculate the monthly payment using the cash back plus standard financing compared to using the special interest rate. If the payments are close, the cash back offer will start the car buyer out with a lower loan balance, which could be the deciding factor.

Dealership Negotiations

For a car buyer, a cash rebate can represent a nice savings on the car purchase. The buyer should remember that the cash rebate is not coming from the dealer and she should still negotiate the best possible price from the dealership. Cars with large cash back rebates are the models the manufacturer and dealerships most want to sell and get off the lot. If you are negotiating on a car with a large cash back offer, redouble your efforts to negotiate a lower price. These are the cars the dealer is anxious to sell, even at little or no profit.