How do car rebates work — and how do you get one?

While car prices are evening out, they still remain quite high. New cars averaged $47,936 in October 2023, according to Kelly Blue Book. That’s still 21 percent higher than the same month in 2020. With car prices this high, rebates can be a helpful way to save.

Rebates give you money back on your purchase, which will lower your total loan amount. However, manufacturers and dealers structure their incentives differently. Before signing buying a new car, be sure the rebate will actually save you money.

What is a rebate on a car?

An auto loan rebate is an incentive that gives you cash back in exchange for purchasing a car. This serves as motivation for you to purchase the vehicle in the specific scenario that the dealership has control over.

But since rebates are offered by manufacturers, you will need to go to a dealership that works directly with the manufacturer to qualify. You may also need to select a certain trim, usually one of the higher-end options, in order to get a rebate.

How do car rebates work?

Auto rebates are special promotions that offer buyers a few thousand dollars off the price of the car. This doesn’t impact the original car price before the rebate is applied — you can and should negotiate with the dealer before discussing rebates — but it will lower the amount you pay for a vehicle.

Rebate offers may last anywhere from a couple of weeks to a few months, and you will have to meet specific criteria to qualify. For instance, you may have to select a certain type of car or apply for financing through the dealership.

An auto rebate can be sent directly to you but can also be part of your down payment. This means you need to finance less overall, which can save you money upfront and over the life of your car loan. In some states, you may even be able to have the rebate applied to the purchase price before taxes, though you’ll need to confirm your state’s rules when requesting a rebate.

How to get an auto rebate

Sometimes, rebates don’t go to just anyone. Be sure to check any qualifications for the rebate. Sometimes, you may have to meet a minimum credit score to use it or finance through a certain lender. Search manufacturer deals on new cars — rebates are typically advertised alongside lease deals and special interest rates.

Is an auto rebate a good idea?

Auto rebates are worth looking into if they are available. Rebates are applied to your down payment, your closing costs or your total loan amount. In some cases, your total cost to own could be lowered by several thousand dollars.

However, you shouldn’t purchase a vehicle simply because of a rebate. In most cases, the selection of vehicles available for a rebate will be limited, and most rebates are restricted to new vehicles — and often, the higher-cost trims of those new vehicles. The draw of a rebate could tempt you to overspend on a car that doesn’t suit your needs or budget. Take time to learn about how much car you can afford.

Other kinds of auto rebates 

What we’ve described so far are cash rebates, which lower the final price of the vehicle upon purchase and come from the manufacturer. They most often come as cash or go towards the down payment, though they can be applied in other ways, like towards closing costs. Some other options can include:

• Dealer cash incentives: These cash incentives go between the manufacturer and the dealer, lowering the price of the car. The prices of the cars listed often include these incentives.
• EV rebates: You might find rebates specifically available for electric vehicles. Edmunds has a whole page where you can search for EV rebates, tax credits and other incentives. You may even find rebates for EVs available through your state. Some programs may apply to hybrids as well.
• Other incentives: Sometimes, dealers offer more specialized cash back than the general programs. You may see other options like loyalty rebates. Dealers may also offer bonus cash to certain buyers like military personnel. There are also non-cash incentives, like vehicle equipment upgrades or aftermarket warranties.

Auto rebate vs. low-interest financing

Auto rebates and low-interest financing, such as a 0 percent APR deal, save you money differently. A rebate gives you a flat amount of money, often applied to your down payment or closing costs. It may also go towards your total loan amount. You then have a lower amount to pay overall. Low-interest financing, on the other hand, cuts down the interest you pay each month.

An auto rebate could save you the most money on your car overall, depending on how much the rebate covers. Even though you will pay interest on your loan, it will be interest on a lower amount. A 0 percent APR offer will also save you money over time, but the primary benefit is paying less interest on your loan.

People with good credit may get the best of both worlds — taking a rebate from the dealer and finding a low interest rate from an independent auto loan lender.

The bottom line

The key to knowing if auto rebates are a wise financial choice is how much the incentive could save you. Look for rebates on car models that you were already considering and understand how that rebate will be applied. You can use a car financing calculator to compare how much you will save over time with different financing options.