How Car Rebates and Incentives Work

New Car Incentives

Zero percent interest rate availability is draped on the side of an unsold 2008 Denali at a GMC Truck dealership in Littleton, Colo.
Zero percent interest rate availability is draped on the side of an unsold 2008 Denali at a GMC Truck dealership in Littleton, Colo.
AP Photo/David Zalubowski

Rebates aren't the only way to save money when buying a car. Car makers and dealers offer lots of new car incentives beyond rebates. One of the most common offerings is low-interest financing. When low-interest financing is an option, that means that dealers and manufacturers have partnered with lenders to offer special loans to buyers of a particular vehicle. Many times, those loans are for zero-percent interest.

Since most people have to borrow money to buy a new car, being able to borrow money at zero-percent interest is a big savings. That's because when you borrow money, the interest rate is extra money you have to pay back on top of the money you borrow. In effect, having interest on a loan increases the car's price. For example, if you borrow $20,000 to buy a car at 5 percent interest, over the life of the loan you'll actually end up paying $24,000. However, with zero-percent interest, that extra money is removed. If you borrow $20,000, you'll only have to pay back $20,000.

Usually, consumers are offered a choice between low-interest financing and a cash-back rebate. It's rare that you can take advantage of both. Before you decide which option is the better deal for you, figure out how much money you'll save in the end with low-interest financing. It may end up being more than the cash back rebate.

Other new car incentives you can take advantage of are special leases, where the monthly lease payment is reduced or the money due at signing is reduced. Sometimes dealers will even offer other incentives, like free maintenance or free options (like a free DVD entertainment system) on the car.

While new car rebates and incentives are great, you still need to be an educated consumer. Before you head into the dealership, understand what discounts and incentives are available to you. It's also good to know what a good price for the car you're looking at truly is. And always negotiate the price before any rebates or incentives are applied. Then, all you have to do is drive off the dealer lot in your new car with a smile on your face.

For more information about car rebates and incentives, follow the links below.

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More Great Links


  • Bruzek, Joe, Mike Hanley and Kelsey Mays. "Tax Credits and Cars." (July 1, 2010)
  • "Rebates and Incentives." (July 1, 2010)
  • Gutowski, Tim. "Explaining Dealer Incentives." Feb. 10, 2009. (July 1, 2010)
  • Shepardson, David. "Electric Car Tax Break Proposed." The Detroit News. May 28, 2010. (July 1, 2010)
  • Wasik, John F. "How to Use Incentives." June 30, 2009. (July 1, 2010)