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How Car Rebates and Incentives Work

New Car Rebates
A long line of Dodge Ram pickup trucks sits on the lot of a Dodge dealership in Littleton, Colo.
A long line of Dodge Ram pickup trucks sits on the lot of a Dodge dealership in Littleton, Colo.
AP Photo/David Zalubowski

One of the most popular types of incentive that car makers offer are new car rebates. New car rebates are those popular cash back offers that you've probably heard being advertised: Buy a car and get cash back. The rebate amounts can range from a few hundred to several thousand dollars.

Most people don't walk out of the dealership with the keys to a new car and several thousand dollars of the dealer's money in his or her pocket (not legally, anyway). Instead, the rebate is applied to the cost of the new car. So, for example, if you're looking at a new car and you and the dealer agree on a price of $20,000 for it, and there's a $3,000 cash back rebate offered on the car, instead of paying $20,000, you end up paying $17,000. Think of cash back new car rebates as a sort of coupon for a discount on the car's price in the amount of the rebate. However, when you go to the dealership, don't be blinded by the rebate. Negotiate the price that you're willing to pay for the car before the rebate. With a combination of a rebate and your negotiation skills, you might be able to save even more than the rebate. In the example above, you and the dealer agreed on a price of $20,000 for the car before the rebate was applied -- that's something that's very important to do. If you're shopping a $22,000 car and can get the dealer to agree to a price of $20,000 before the rebate is applied, you'll save a total of $5,000, even though the rebate was just $3,000.

When you're looking at a car, dealers will probably let you know about the rebate up front. But, to save the most money, politely let them know that you appreciate the information, but that you want to settle on a price for the car before you talk rebates and incentives.