How Car Rebates and Incentives Work

Image Gallery: Sports Cars A "sale" balloon advertises a special price on a Mustang at a Ford dealership in Tacoma, Wash. See more pictures of sports cars.
AP Photo/Elaine Thompson

You know the feeling: You've got your eye on something you want or need, but it's just a little too expensive. Then, boom -- it goes on sale, and you pounce. You were able to get exactly what you wanted (at a discount), and the salesperson scored a sale, too. Everyone wins.

While retailers like the grocery or department store may offer sales or coupons, automakers and dealers tend to discount their merchandise through rebates and incentives. Car rebates and incentives are programs that stimulate sales for car makers by giving savings to consumers.

There are three main types of car rebates and incentives offered to consumers: cash rebates, low-interest financing and special leases. Car dealers can also get incentives from the manufacturer to help spur sales. And if you know what incentives are being given to the dealer, you can use that information to negotiate a better deal for yourself.

If you know how consumer rebates and incentives work, you can also use that information to find the best deal. For example, since you know now that car makers use incentives to increase sales, it's easy to see that brands with slow sales tend to offer the best incentives to consumers. So, if a car maker is having a good sales month or year (and if you want to save money), you may want to shop a competitor that's in a bit of a sales slump -- chances are they're offering better discounts.

One prime example is Toyota. In the winter of 2010, Toyota hit a massive sales slump due to highly publicized recalls of Toyota cars, trucks and SUVs. Sales tanked. To get customers back into its showrooms, Toyota offered lots of incentives, which dropped the price of a new Toyota car or truck.

Simply by paying attention to what's going on in the automotive market and the manufacturers offering in incentives, you can probably get your next car at a decent discount. And who wouldn't like that?