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Cash-back rebates and discounted financing programs have long been valuable tools for automakers to boost sales of their slower selling models, and they’re currently being used to help soften the seismic shift in consumer tastes away from small and midsize sedans and into more crossover SUVs and pickup trucks. As of this writing automakers’ incentives have risen every consecutive month for nearly three years, with the industry-wide average at over $3,700 per vehicle.

Incentives tend to be the richest and most plentiful in late summer and through the fall, to help dealers sell off their inventories at the end of a given model year, and especially in late December, as carmakers make one last push to end the year on a high note. You can check to see what’s being offered in your area of the country by checking any of the automakers’ websites and clicking on a “special deals” or “local offers” tab, which is usually at the bottom of the home page.

But one might question why automakers simply don’t just drop the prices on less-popular models to help move the metal? Both carmakers and their dealers prefer generous cash rebates and financing promotions as a marketing tool, as such deals can be adjusted month-by-month and region-by-region to address local supply and demand issues without issuing a broad price cut.

While in some cases it can be a better deal to take the cash rebate up front, other buyers will find the most savings realized over time by instead choosing a cut-rate financing offer. Here’s how to decide which is best for you:

When Cash is King

Consumer cash rebates take the form of cash paid directly to the buyer. While you can accept the rebate in the form of a check after the sale, most people apply this amount directly to their down payments. This can be especially advantageous in that placing more money down can either help a buyer obtain more favorable financing terms or qualify for a loan in the first place if his or her credit score is low. And, obviously, if you’re paying cash for a car or truck, this is the only way to go.

In addition to consumer cash rebates, automakers often grant specific incentives to military personnel, recent college graduates, or members of select organizations like the AARP. Also popular are rebates given to returning customers trading in a same-brand vehicle or those coming out of a competitor’s model. Add up all those for which you apply; you may be surprised how much of a discount you’ll get even on a given model before negotiating the final transaction price.

The Loan Arranger

Often, but not always, automakers offer discounted financing deals via their so-called captive-financing divisions as an alternative to a cash rebate. These incentives can be as low as zero percent interest for as long as 72 months in some cases, and we’ve seen financing deals for as long as 84 months. On the down side, the lowest advertised rates are typically reserved for what car ads refer to as “well-qualified buyers,” which means those having pristine credit histories. If you have late payments or other blemishes on your record, you’ll be asked to pay a higher rate, and you may have to do business to with another lender who will take on the added risk if your credit score is especially low.

At that, be sure to check with both local lenders and Internet sources like ahead of time to see how the lowest available rates compare with an automaker’s financing programs.

Running The Numbers

Generally, buyers are given a choice of either cash back or discounted financing, though some of the best deals we’ve seen lately include both cash back and discounted financing offers as an alternative to a somewhat higher rebate. We’ve seen offers as generous as $5,000 cash back or $3,500 cash back combined with zero-percent financing. Unless one is paying cash, the combined rebate and financing deal would yield the best long-term bargain here.

Let’s see how some rebate and financing offers stack up in terms of long-term ownership costs, using the car loan calculator from as a guide.

For starters, we’ll assume someone is buying a vehicle that has an out-the-door price of $30,000, with a choice of taking either a $2,000 cash rebate or zero-percent financing for 60 months; the buyer has good credit, and will be putting $5,000 down on the transaction. Assuming he or she can qualify for a 3.0% interest rate from a local lender, taking the rebate and outside financing will result in a monthly payment of $413, or a total of $24,797 out of pocket over five years (not counting the down payment). Taking the zero-percent financing instead of the rebate yields a similar monthly payment of $417 and a total outlay of $25,000 over the financing period, which makes this a virtual push.

Here’s how things stack up if we double the purchase price to $60,000 with a $2,000 rebate and $8,000 down payment: Taking the cash up front and financing at 3.0% results in a monthly payment of $898 and a total out-of-pocket of $53,906, while taking zero percent financing will yield a $867 payment and $52,000 total outlay. The advantage here goes to the cut-rate financing.

Here’s how things look if we boost the cash rebate amount to $5,000: The $30,000 vehicle with a $5,000 rebate and $5,000 down will yield a $359 monthly payment and $21,562 total outlay over five years, versus a costlier $417 a month with $25,000 paid at zero percent interest. Meanwhile, taking a $5,000 rebate and putting $8,000 down on a $60,000 model will set a buyer back $773 a month and $47,359 after five years at 3.0%, versus $867 a month and $55,000 out of pocket taking the zero percent financing. In these cases, more cash-back yields the better deal.

One More Thing

No matter how great a rebate deal or how low an interest rate you may be offered, keep in mind that the final transaction price on a given model is almost always open to negotiation (with exotic cars and some high-demand/limited production vehicles being the exception to the rule). Deduct the value of any cash rebates only after obtaining your best deal with a salesperson. Click here for some helpful tips on how to obtain the best deal on a new car or truck.

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