Car manufacturers and car dealers need to keep selling new cars to maintain the production of subsequent models. If the inventory in dealer lots of certain models gets too high, the car manufacturers will offer incentives to make the cars more affordable to buyers. Incentives become especially prevalent when a new model is coming out and models from previous years need to be sold.
Consumer Cash
Consumer cash or cash rebates are a widely used form of car buying incentive. The car manufacturers offer extra money if a buyer purchases a specific model and year of new car. The term cash incentive is a little misleading because the majority of new car rebates are used to reduce the purchase price of the car. Cash rebates are real savings to a car buyer. The dealer is required to pass consumer rebates along to the customer and cannot take the rebate without informing the buyer the rebate is used in the car purchase.
Finance Incentives
Another form of car buying incentives is subsidized interest rates on car loans or special lease programs. Low interest car loans can save a car buyer thousands of dollars when compared to regular finance rates. An incentive finance rate can be especially valuable to the buyer who does not have a top tier credit rating and would otherwise not qualify for the best auto financing terms. Subsidized leases are a good deal for the buyer who can meet the requirements and adhere to the mileage restrictions.
Cash or Finance Rate
Often a car manufacturer will offer a choice of cash rebate or low rate financing. A car buyer should have the dealership calculate the monthly payment with each option and select the plan that yields the lowest payment. Choosing the rebate does lower the loan amount, and starting with a smaller loan will result in a better loan-to-value ratio, or shorten the period of time the car is worth less than the loan balance.
Price Negotiating
Car buying incentives from the manufacturer should not influence your negotiations with the dealer. Apply the selected incentives after negotiating the best possible price on the car. Cash rebates are not the dealer's money and it does not affect his profit margin on the car. Beware of a purchase offer that shows the car price at the full sticker price less the cash rebates. If the manufacturer is offering significant rebates on a certain model, the dealer is probably over stocked with the same model and should be willing to negotiate an attractive price.
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