A new car's price can be a moving target for shoppers. An uninformed buyer might pay one price, while a shrewd negotiator could pay much less. What if there was a way to get a discount without having to rely on your negotiating skills? Happily for consumers, there is such a way, via incentives and rebates.
New-car incentives and rebates are discounts offered by an automaker to help steer consumers away from the competition or make sure they stay loyal to a brand. They are also used when a certain model is not selling well enough and the automaker needs a lower price to spur sales. Knowing about car incentives and rebates and how to incorporate them into the buying process can potentially save you thousands of dollars.
Incentives typically take the form of cash rebates, low APR financing and special leases. Many carmakers also provide additional incentives to first-time buyers, college graduates, members of the military and other specific customer segments.
Incentives can help you decide among a few vehicles you're considering. For example, Car A and Car B might have the same price, but if Car A has a $1,500 cash rebate, it becomes a much better value proposition.
Manufacturers can change incentive programs at any time. The incentives and rebates listed on Edmunds.com reflect national and regional promotions. Make sure you enter your zip code to ensure that the incentives information is correct.
Know the Incentive Types
Before you learn how to use car incentives and rebates, you must first know what they are. Here is a quick rundown:
Customer Cash: Customer cash, also called bonus cash, is a rebate the manufacturer gives to the consumer. The buyer typically applies it to the price of the vehicle, but buyers can sometimes opt to keep the money for themselves. Bonus cash can also be applied to the finance price of a lease.
A buyer often must meet certain requirements in order to get a rebate. To qualify for a loyalty bonus, for example, the buyer needs to show proof that he owns a vehicle of the same make as the one he's buying. A "conquest" bonus, on the other hand, might require that a buyer show that he owns a competitor's vehicle. Many carmakers also require that the vehicle be financed through their "captives," meaning financing companies they control, such as Nissan Motor Acceptance Corp., or Honda Financial Services.
Dealer Cash: Car dealers sometimes get a form of incentive called marketing support. The most common type of marketing support is called dealer cash. This incentive is paid to the dealer by the carmaker. The dealer is not obligated to pass on the savings to the consumer, but it can influence your negotiation. More on that later.
Low APR Financing: This incentive offers interest rates on financed vehicles ranging from zero to about 5 percent. A buyer needs excellent credit to qualify, however, so not everyone will be eligible. This is why we advocate that buyers get pre-approved for a car loan before they go shopping. That way, they'll have an interest rate to compare to what the dealer offers or something to fall back on in case they can't qualify for a dealer-offered low APR financing deal. The low interest rates are sometimes tied to the length of the loan term, so pay attention to this detail.
In most cases, low APR financing cannot be combined with customer cash. And in most cases, customer cash is a better deal because you are financing a smaller loan amount. But if you want to explore all your options, the Edmunds Low APR vs. Cash Back Calculator will help you spot the better value.
Special Leases: Manufacturers often offer special lease programs through their captive financing companies. Most of the lease programs listed on Edmunds.com are of this variety and are formally known as subvented or subsidized leases. These subsidized leases are generally based on a residual value that's much higher than the actual worth of the car at the end of the lease. That's known as the "money factor," and it's subsidized to result in below-market lease rates. In other words, the carmakers and dealers tweak the residual value to bring down the monthly payment.
Special leases are very common and can provide a low monthly payment with little or no money down — provided you pay attention to the fine print. There's not much room for negotiation with advertised lease specials. Instead, focus on getting the dealer to match the advertised special. Some dealers might say they can offer you a "better deal" than the lease special. And while the monthly payment may seem lower, it could cost you more up front, or in the long run. So shop with care.
Here are four important items to consider when you get a lease quote:
1. The length of the lease in months. Edmunds recommends 36 months.
2. The down payment. Edmunds recommends zero down.
3. The number of miles allowed per year, which is usually 12,000.
4. The monthly payment, including taxes and all fees.
How To Research Incentives and Rebates
Go to the Edmunds Incentives and Rebates page. Click on the car brand you are interested in. You'll see a summary of current incentives. This will give you a basic idea of what the automaker is offering. You'll need to choose a specific model to see further details. That page shows the incentives specific to that vehicle. It will also show you the start and end dates of the promotion. Clicking on the "Show details +" button reveals the requirements and other important details.
Once you know the incentives, call or e-mail the dealer for a price quote. Most of the time the salesperson will tell you about any current incentives, but it is still a good idea to have done your own research ahead of time.
Just because you are using an incentive does not mean you have to forgo negotiating the car's price. Instead, treat the rebate as a given and continue to negotiate as you normally would. For example, if you plan on offering $500 below MSRP, make the offer and say "plus incentive." If a vehicle has a dealer cash incentive, you can mention that you know about it, but keep in mind that a dealership is not obligated to pass that savings on to you. Instead, you may want to make a more aggressive offer, knowing that the dealer will get cash from the manufacturer when it makes the deal with you.
Now that you know the basics of car incentives and rebates, make it a point to research them before making an offer. The key to being an expert shopper is successfully combining an incentive with a negotiated price. Here's a final tip: If there aren't any incentives on the car you are interested in, consider waiting a few months. You will probably find that the selection is better and there will most likely be incentives offered on the car.
To find a dealership that knows how to treat shoppers right, please visit Edmunds.com's Dealer Ratings and Reviews.