How Does Cash Back Work When Buying a Car?

Car dealerships and manufacturers offer a variety of incentives to make vehicles more attractive to consumers. Cash back is just one of those incentives.

The cash back incentive is often referred to as a new car rebate. These rebates typically come directly from the vehicle’s manufacturer. Manufacturers like to use rebates because it helps dealerships sell more vehicles. That, in turn, causes dealers to order more vehicles.

This also helps jump start sales for a vehicle that hasn’t generated a lot of interest. Instead of languishing on the lot, the manufacturer provides the deal and hopefully makes more sales.

They also have a choice to make when deciding on a car purchase. Cash back incentives are often offered as either/or propositions. Consumers choose between cash back or a low financing rate.

If they pick cash back, consumers have yet another choice to make: how to receive the money. They can get the money via a check from the manufacturer or they can factor it into the down payment. Most go with the latter. The money is immediately deducted from the down payment, lowering the amount a buyer owes on a vehicle.

With so much to decide, it’s a good idea to take a closer look at these offers. Educated consumers can make wiser choices when it comes to purchasing cars and thinking about cash back offers.

When Are Cash Back Deals Offered?

Cash back deals can occur at any time of the year, but they are very common during holidays or during special sales. A manufacturer might also offer cash back deals right before the newer year model comes out or at any other time to jump start sluggish sales.

Since there are so many reasons to offer cash back incentives, it’s always smart to look for them before buying a car. They can spring up at any time, so consumers might be lucky enough to find them when they are ready to make a purchase.

Are Cash Back Incentives Worth It?

On the surface, most consumers believe that cash back offers are worth it since they save them money. However, when confronted with an either/or offer, they are often confused.

Should they take the zero percent financing or should they take the cash back offer? Which is the better deal?

At face value, people might think that the zero percent financing is the best deal since payments can go directly to the principal of the auto loan. However, it is important to look a little deeper when deciding which offer to take.

Dealers will calculate monthly payments for both offers. People often find that monthly payments are close to identical.

However, keep in mind that zero percent financing is not easy to qualify for. Only consumers with excellent credit would be able to get such an offer, so the group that couldn’t qualify should take the cash back rebate.

How to Make the Deal Even More Enticing

Consumers can make cash back incentives even better by negotiating the price of the vehicle. Many people think the price isn’t up for negotiation since cash back is already offered, but that is not the case.

Consumers need to remember that cash back is offered by the manufacturer, not the dealership. Because of that, consumers should try to cut down the price as much as possible. Dealers still have wiggle room with pricing, and consumers should take advantage of it.

In many cases, these are the vehicles that manufacturers and dealerships want to move off the lot. They want to get rid of these vehicles as fast as they can, so dealers are often open to negotiation.

The Bottom Line

Cash back is a good incentive, but consumers should not let go of their bargaining power. Dealerships want to get rid of these vehicles, so consumers should negotiate a better price.

They should also look at the other incentives available if cash back is part of an either/or offer. In most cases, cash back is the clear winner, but not always. A careful examination of the amount owed and the monthly payment helps consumers make the smartest choice. Then they’re more likely able to purchase a vehicle they can afford.