When shopping for a new car, you will notice that the amount you can spend will limit the amount of cars you will be able to afford. Two ways to grab that new car that would normally be out of reach are with rebates and incentives (low-interest financing or APR). Most often rebates and incentives are offered by manufacturers to help dealers sell cars that aren't in high demand.

What is a rebate or incentive?

A rebate is a reduction in cost that is refunded to you by the manufacturer after the purchase. The good news is that there are generally no eligibility restrictions on rebates – if you can pay for the car, you'll get the rebate. Note: in many states, you'll still pay taxes on the full purchase price, not the purchase price minus the rebate.

An incentive is a reduced lease or finance interest rate, offered to you by the manufacturer's financing division. Finance/interest rates are also referred to as an annual percentage rate (APR). The bad news is that the incentive interest rates are subject to eligibility restrictions, meaning that if you have poor to mediocre credit, then you won't be eligible for the best rates. In these cases, you might be better off getting a loan somewhere else and taking the cash rebate from the dealer (if there is one). Sometimes, rebates and incentive interest rates may be combined – for example, $2000 cash back plus 2.9% financing for 48 months. Other times, the offers are "either/or," meaning you can't have both.

More Facts About Rebates and Incentives

First Things First

One of the most important things you need to keep in mind during the negotiation process is to negotiate the price of the car before you mention anything about the rebates or incentives. Settle on a good price for your car, then any rebates or incentives that are offered will just equal that much more savings.

How to find Rebates and Incentives

Your best bet to find rebates and incentives is to check with your local dealers. While looking for bargains, you will notice that the most lucrative deals can be found on the previous year's model; the manufacturer doesn't want the dealer to have a lot of old inventory sitting around on his lot.

What is the Most Common Rebate/Incentive?

Cash rebates from the manufacturer are the most common and least complicated. Cash rebates are money that you get back from the manufacturer after the sale. Here's what you can do with them:

1. Increase Your Down Payment:

   If you have $2,000 for a down payment and the rebate is $750, you can combine the two and put $2,750 toward the negotiated price so you can have a lower monthly payment.

2. The Check is in the Mail:

   If you already have enough money to put down, you can choose to have the manufacturer mail you the rebate after the purchase is complete, and you'll have some gas money to spend on your new ride.

3. No Money Down?:

   You can use the rebate as your down payment if you don't have enough cash handy.

Other Types of Rebates:

In addition to regular rebates, there are several different types of rebates offered to special groups. Here are four examples:

1. Loyalty:

   Some manufacturers offer loyalty rebates to customers who already own that brand of car.

2. Conquest:

   The opposite of a loyalty rebate. Conquest rebates are offered by a manufacturer to lure you away from the manufacturer of your current car. For example, if you currently own a Toyota, General Motors might offer you $2,000 to buy a Chevrolet instead of another Toyota.

3. Military:

   Many manufacturers offer special rebates for members of the military with proof of service.

4. Student:

   Some manufacturers offer rebates to students who are buying a new car for the first time.

BOTTOM LINE:

If you plan to accept a manufacturer's rebate, don't let the dealer factor that in during the negotiation. A rebate is your money from the manufacturer (not the dealer) and is deducted once the price of the vehicle has been agreed upon. And, you're more likely to be able to take advantage of rebates and incentives if you're open to buying a slightly older design.