The discount available is written on the windshield of an unsold vehicle at a Ford dealership in east Denver.

AP Photo/David Zalubowski

Rebates for Buying a Hybrid Car

So far we've only talked about rebates that come from the car manufacturers or the dealers. But sometimes the government offers a rebate for buying a car. Even when it's the government offering the rebate, the reason and the effect is the same: The government wants to increase sales of a particular model and consumers save money in the process.

Currently, the government offers rebates to some consumers who buy hybrid and alternative fuel cars. The rebates are given because the government wants to encourage people to buy this form of technology. The idea is that if more people drove hybrid or alternative fuel cars, the country would use less gas and we'd ultimately have less air pollution, too.

However, while most rebates on cars are applied directly to the purchase price, the government rebates on hybrid and alternative-fuel cars are applied for through the state or local government after the car is purchased. Most dealers can help you do that, however, so the process is pretty easy and you save money.

While rebates on hybrid and alternative fuel cars vary by state, the federal government offers tax credits on some hybrid and alternative fuel car purchases. While that doesn't directly bring down the cost of the car, it still means a net savings for the year, since your federal tax bill will be reduced.

For example, if you buy an electric car like the Nissan Leaf, which is due to be released in the fall of 2010, the federal government is currently offering a tax credit of up to $10,000 in some communities. For most people, a $10,000 tax credit could significantly reduce their overall tax bill and make buying a hybrid or electric car much more affordable. For hybrid cars, you can currently get a tax credit of up to $3,400 (depending on the make and model hybrid you buy).