Does a Cash Back Rebate Actually Help You In a New Car Purchase?

Cash? I like the sound of it. But when investing in a new car (which is often the second-most expensive purchase you’ll make in a lifetime, next to your home), it’s good to give a cash back rebate a bit of analysis.

What does it mean, how can you use it, and who does it benefit? All of these questions and more will help us determine whether a cash back rebate is, indeed, worth its weight at the dealership.

What does a cash back offer mean?

Sometimes, new car purchases come with a cash back rebate. In this case, you’ll buy your new car and then receive a one-time rebate. While different deals bring different rebates, you’ll often see them in the $1,000–$3,000 range. 

A cash back rebate typically comes in the form of a check from the manufacturer or a discount in your down payment. 

If you get a check, you can put this cash rebate toward anything you want, but it’s smart to put it toward the car you just purchased. It can trim some time and interest off of your financing period. You may also want to put it toward the cost of your new license plates or vehicle taxes.

How manufacturers benefit from a cash back rebate

Manufacturers use cash back offers as a marketing tactic when they’re trying to incite sales on a particular model. This usually occurs when the new model year is coming up and they’re trying to clear out their inventory. With this in mind, you may be more likely to score a sweet cash back deal just before the manufacturer delivers the new model year.

A cash back rebate doesn’t mean you can’t negotiate the invoice price

Even with a cash back rebate on the table, you can (and you should) still negotiate the invoice price for your car. This is because the cash back offer comes from the manufacturer, while the negotiation process occurs through the dealership.

Proper negotiation at the dealership can save you thousands on a new car. Do your research and come prepared. Know your absolute maximum and don’t go past it. If you can talk with the lender yourself, that’s always best. And don’t give away how much you can really pay!

Should you opt for low financing rates instead?

Sometimes, drivers have the option of choosing a cash back rebate or a low financing rate (like 0% interest). In this case, you’ll want to do some calculations.

First, find out if your credit score is high enough to make you eligible for the low interest rate at all. These are usually reserved for people with higher credit standings.

Second, find out how long the low interest rate applies for (such as the first 12 months). Once you know this, you can make a rough estimate of how much you’ll save taking the low financing. If it just about breaks even, it may be smarter to take the cash and apply it to your down payment. However, if you’ll save a lot more money with the financing, definitely choose that route.

In short, don’t take any deal at face value. Do your research!

Two types of cash back rebate: Customer cash vs. conquest deal

Customer cash is the most common type of cash back rebate. This is direct cash (or a check) from the manufacturer.

On the other hand, a conquest deal is a way for manufacturers to compete with each other. In order to snag this deal, you may need to prove you currently drive their competitor’s car. The manufacturer will then offer you a special deal to switch your brand loyalty.

Bottom line: Take the cash unless you get a better deal

In most cases, you can pretty much take a cash back rebate at face value. If you’re offered a low financing rate instead, do some calculations and find out which one will get you more money. Whatever you choose, always negotiate your invoice price lower, even if just by one or two thousand bucks.