Auto Deals and Incentives: What to Know

Auto dealers and manufacturers offer various types of incentives to attract car buyers and boost vehicle sales. Auto incentives come in many forms — from low-rate financing to customer credit toward the price of the vehicle.

The majority of car incentives are for the purchase or lease of new vehicles, but you may find incentives for certified pre-owned vehicles sold by franchised new-car dealers. Also, incentives usually have specific requirements tied to car make and model, loan term and borrower credit score. Often, these offers change monthly and differ based on your location.

Finding the best auto incentive for your particular need may require research, but the time you invest can pay off in today’s market of high car prices. A good place to start is understanding what car incentives are available.

Auto rebates provide a certain dollar amount to reduce the cost of buying or leasing a vehicle. This type of incentive is advertised under many different names — cash rebate, customer rebate, car rebate, customer credit, cash back or bonus cash. The rebate amount typically goes toward lowering the vehicle purchase price or reducing any required down payment. Car rebates may also be in the form of cash or a check, although that isn’t common.

For example, if you buy a $35,000 car that has a $1,500 cash rebate — and you have no trade in or money down — the car price would become $33,500. If you finance for 60 months with an 8% APR, the no-rebate scenario would result in monthly payments of $709.67 and a total loan cost of $42,580.43. With a rebate, monthly payments would be $679.26 and total loan cost would be $40,755.55.

Auto financing deals with low interest rates, such as 0% APR or 1.99% APR, are another type of incentive offered by car manufacturers and their financing arms called captive auto lenders.

Borrowers will need to have very good or excellent credit to qualify for these low-rate auto financing deals. Also, low-rate financing offers may only be available with shorter term loans, like 36-48 months or less.

Captive auto lenders sometimes offer car-lease incentives to make leasing more attractive. These are often advertised in the form of cash rebates, low interest rates or very low monthly lease payments.

Cash rebates — also called lease cash — work in the same way as auto purchase rebates to lower your overall cost. For example, let’s say you lease a $30,000 car, which becomes $28,500 after you apply $1,500 in lease cash. You also put down $1,000 of your own money. A 36-month lease with an interest rate of 4.5% would result in monthly payments of approximately $426.91 and total payments of $15,368. Without the lease rebate, monthly payments would be about $471.39 with total payments of $16,970.

Sometimes, to achieve the low lease payments advertised, vehicle manufacturers will subsidize a vehicle’s projected residual value — the estimate of what your car will be worth when the lease ends. Your lease amount is determined by subtracting residual value from the initial car price, and a smaller lease amount equals lower payments. This practice isn’t necessarily a negative, unless you decide to buy your car at the end of the lease.

Some auto dealers and manufacturers also offer incentives for specific groups of people. For example, if you have a certain car brand and want to buy or lease another one from the same manufacturer, you may be eligible for loyalty incentives.

You may also be eligible for special financing if you belong to certain demographic groups — like recent college graduates, members of the military or educators.

If you’re planning to purchase or lease an electric vehicle, there are numerous incentives beyond those offered by auto manufacturers. The most popular is the federal EV tax credit, which does have eligibility restrictions.

If you and your vehicle qualify, you can claim the tax credit for up to $7,500 when filing your taxes. You may also be able to transfer the credit to the dealership and use it as a discount on your vehicle whether financing or leasing, but the ability to do so varies by dealership.

You may also find EV incentives through state and local governments or your local electric company.

When the pandemic caused a vehicle shortage, auto incentives nearly disappeared. As auto inventories have returned to normal, incentives are starting to return.

Most auto manufacturer websites enable you to search for auto deals and incentives in your area by using your zip code. This is a good way to see all offers available — cash rebates, low-rate financing and lease deals — for that carmaker’s vehicles.

You can also find a current list of car deals and incentives on some auto research websites like Edmunds.com.

Even if you know you’ll be buying or leasing at a certain dealership, it’s a good idea to research incentives before you arrive. Being aware of what incentives you may qualify for without relying on the auto dealer to tell you can potentially save you money.

Auto incentives can lower your monthly car payment or reduce your overall car costs by hundreds or even thousands of dollars, depending on the offer. To get the most out of incentives, here are a few tips to help.

When negotiating car price with a dealer, don’t include discounts from incentives. These should be thought of separately. Ask for the car’s out-the-door price which will show a breakdown of fees, and look for any hidden charges a dealer may use to recoup profit lost to incentives.

One type of vehicle may offer more than one type of incentive — for example both a low interest rate and cash rebate. Usually you can choose one or the other, but it never hurts to ask if they can be combined. If not, use an auto loan calculator to run each scenario and see which will save you the most money in the long run. Also, consider whether taking a cash rebate at the dealer and financing elsewhere could save you even more.

Additionally, if you intend to buy a certain vehicle make, shop around at different same-make dealerships. Automakers sometimes compensate dealers with cash or rewards to help them achieve sales goals — especially at the end of the month, quarter or model year. It’s up to the dealer whether they choose to pass these incentives along to the buyer, and they may be more likely to if they know you’re looking at a similar car elsewhere.

Car manufacturers often use incentives to help sell their older or less popular models. Being flexible about make and model could help you find the best incentives. However, consider that less popular models could depreciate faster or have known mechanical issues that negate any savings.