What Does Cashback Mean for Car Buyers?
I am a serial entrepreneur and a consumer advocate. When I’m not helping car buyers, I love working on ventures that have a positive impact. I run a cause marketing agency and serve on the board of Vayu Global Health where we are disrupting the medical industry and preventing the needless deaths of mothers and babies during childbirth.
Wondering what the heck advertisements for cashback, bonus cash, or cash allowance really mean?
Does someone hand you cash when you buy the car?
It's easy to explain, but it's not always a good deal.
Let's take a look.
Looking for Deals? Here's our picks for the best cashback deals for this month.
Table of Contents
What Exactly is Cashback?
A cashback incentive is a rebate provided by the car manufacturer to the customer. The amount typically reduces the selling price of the vehicle (or cap cost if you are leasing), but occasionally you have the option to get a check for the amount.
These terms for cashback all mean pretty much the same thing and are often used interchangeably:
- customer cash
- retail customer cash
- bonus cash
- cash allowance
- total cash allowance
- cash rebate
Why Do Manufacturers Offer Cashback on Cars?
Manufacturers want to encourage sales on certain vehicles. Often times, they are looking to clear out a certain model to make room for the next year's model. It does not mean the model with the deal is of poor quality or value, you can still get an excellent vehicle using this kind of deal. Cash back offers entice car buyers to choose those models, which helps the manufacturer move those cars. The better the manufacturer is doing, the fewer rebate offers they will have available.
When Are Cash Back Offers Available?
Manufacturers may offer these deals at any time, but they are most common during:
- Big buying seasons like holidays or special sales events. Holidays near the end of the year are the biggest time for cash back offers because the manufacturer wants to clear out those models before the model for the new year comes in.
- Slow sales or end of the financial quarter. Manufacturers may also add these deals during slow times or at the end of a financial quarter to help spark sales.
Research manufacturer and dealership incentives before buying a car and keep your eye out as new ones become available. Manufacturers typically publish new cash back deals at the start of each month.
Car Rebate Options
Technically, you may use a cash back rebate on anything you want. There are usually two options for using car rebates:
- Put rebate amount into car price. It is wise to put the rebate amount back into your car purchase. This way, you can cover fees or contribute to part of the down payment.
- Take rebate for other financial needs. If you choose not to invest the rebate back into your car, you will not really experience a discount on that purchase, but you may want to use the money toward something else if you have a more urgent financial need.
You can also choose how to receive the money. For example, you can opt for a check from the manufacture or apply the offer back to your vehicle. Typically, most people put the money back into their vehicle purchase so they can lower the cost to buy their new car quickly and efficiently.
Are Cash Back Incentives Worth It?
Many manufacturers offer you a choice between a rebate or low financing. As a buyer, you can choose which offer to accept. At first glance, a cashback offer seems great, but the choice is not always so clear when 0% financing is available as an alternative.
You need to compare the two options closely. Ask the dealer to calculate the monthly payment for the two different scenarios. Choose the option with the lower monthly payments. If those are very close, then you may want to opt for cashback as it can lower your initial loan balance. Keep in mind that 0% down financing will be hard to qualify for without great credit. If you do not qualify, then choose the rebate.
Recommended: Check out our top picks for the best 0% APR deals that come with cashback for this month.
What Does Cashback Mean at a Dealership?
Dealerships may advertise cash back offers, but the dealership themselves do not provide the rebate. Instead, the manufacturer offers the rebate and then authorize the dealerships to advertise them. The manufacturer is the party that provides you with the advertised money back.
Negotiate with the Dealership
While cash rebates can help you save on your car purchase, they do not come from the dealership. You can still get an even better deal by negotiating with the dealer. If you're looking at a car with a large cash rebate offer, negotiate a lower price because dealers will want to move these vehicles off of their lot to make room for the new manufacturers' cars.
Get the Best Car Price
Cash rebates are great incentives, but they do not erase your bargaining power as a consumer. Dealers are also looking to sell those vehicles, so try to negotiate an even better price. Additionally, you should examine the other incentives available to make sure you get the best deal.
