Car Shopping 101: Explaining Factory Rebates and Incentives

Rebates street sign
Photo Credit: alexmillos/
If you are going to be car shopping in December, you need to understand how factory rebates and incentives work. Iíve been in the auto business or an auto journalist for the vast majority of my life. I study vehicle incentives every single month when they change, and even after all these years, I get confused.

Given that, it is no wonder people get cross-eyed when it comes to incentives. The dealers themselves have trouble keeping up. Dealers have no idea from month-to-month what the incentives will be, and it is common for them to change numerous times during any given month.

There are certain things you need to know. All factory incentives are designed to help the dealers sell cars. It is not that the automakers are just being nice, they want the dealers to re-order inventory, which is how auto manufacturers make their money.

First and foremost, you should remember that factory incentives are your money and the dealer wants you to have every available incentive you qualify for, that makes their job easier to help you purchase a car. All rebates come from the auto manufacturers direct to you, but the dealers administer them for your convenience. You should think of factory rebate dollars as cash, because that is what they are.

One big issue for dealers today is making sure you get all the incentives and rebates possible. If they leave you with a price and miss an available rebate, it puts the dealer at a big disadvantage if you shop their price, and the competition picks up on a factory offer.

Many of the carmakers are big into sending you private offers. They have gotten good at predicting when you might be back in the market for a car, and theyíll send you mail or email offering you extra cash above and beyond what the public is offered. These are real offers, but generally have a time limit on them, so read them carefully.

Another evolution of incentives is alliances and groups. For instance, if you are looking at a Ford pickup in the Texas market, there are extra private money offers for college students, those in the military, members of the American Quarter Horse Association, police officers, season ticket holders of the Dallas Cowboys and Houston Texans, and people who are currently leasing competitive products, just to name a few.

Then we get into the quandary of rebates vs. low interest rates. No two cases are alike, and generally you need a dealerís help to know which is best for you. It is helpful to know what rate you can get on your own to make a fair comparison. For some, your credit union or bank rate combined with the rebates will be your best option. For others who cannot get a great rate on their own, you might be best to give up the cash rebates to get a 0% rate.

I hear from cash buyers all the time who are angry because they have to finance their vehicle to maximize cash rebates. In other words, many automakers offer an extra $1000 or even $2000 in rebates if you finance with their captive finance company (Ford Credit, Ally, Toyota Financial, etc). In these cases, itís best to go ahead and finance to get the extra money, then either pay off the loan or re-finance before the first payment is due and you will not accrue any finance charges, yet keep the additional rebate. There is nothing wrong with doing this whatsoever.

I want to stress that factory rebates are your money. You can choose to take the rebates in cash, something we are seeing more and more people do. I have seen a good number of people get a new car, then take a large rebate in cash to pay off other debts, like high interest credit cards.

The main thing is while in the process of buying a new vehicle, if you have questions about incentives, stop everything and understand them fully. Itís your money.

Donít miss our rebates and incentive guide for every automaker:

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My insurance company USAA has a buying service. I plan to use the CarProUsa approach when I buy a new car in December. However, it seems that the insurance company has an affiliate program with car brands like BMW where you get an additional $1,000+ off. Does anyone know where the affiliate cash comes from? Is it real money or discount I could have gotten anyway?
The Car Pro
Most of these are "discounts" not rebates that are supposed to come from the dealership, however companies like USAA also charge the dealer a hefty fee for sending them you as a lead. Most of it is smoke and mirrors to be honest.

Try it both ways, we get nothing if you buy or don't buy, that keeps everything neutral.

Jerry Reynolds
Erik H.
I am coming down to the wire but still have time to purchase before year's end. I just need some advice from you. I am looking for an economical all wheel drive vehicle. The last vehicle we bought new was a 1999 Honda Odyssey which has been great but is now sitting waiting to be donated. It has 240,000 miles and the transmission is about to fail and it needs a radiator. We bought it when the girls were babies and the new car would be for the younger daughter. I was considering the Honda CRV but I think you said Honda does not have incentives. Does Subaru?
Thanks for your help
Jerry Reynolds
Yes, Subaru has some good incentives through 1/2/18 and their all-wheel system is terrific. That?s a good choice for sure.

Jerry Reynolds
Car Pro Radio Network
Scott .
I bought a new KIA 2017 Forte. It was advertised as having 2,500 customer cash. They did not deduct this off the price or anywhere in the purchase documents so I assumed they would be sending me a check. A few days after the sale I called the dealership and they said the 2,500 KIA customer cash does not apply because the car was part of the loaner program. The car had 4,000 miles when I purchased it. Very frustrating.
Jerry Reynolds
I am sorry that happened Scott. As I always say on the air, look over everything before you sign it. Afterwards, it is too late. You will never get a rebate in the mail unless you specifically ask for it. I hope you enjoy your car.

Jerry Reynolds
Car Pro Radio Network
Ken .
I am about to purchase a Heavy Duty truck. I have done my research but haven't come up with a clear answer. My question is: Between the Cummins 6.7L diesel and the 7.3 in the F250, which engine is the better engine for light to moderate use? I am looking for a long-term truck to pay off and keep, however, I'm not sure which of the two engines you would consider best for normal city driving and 6-8 times a year pull a boat and trailer.
Jerry Reynolds
I prefer the 7.3, I don't think there has ever been a better diesel. When I was still in the car business, I had a parts truck that went over half a million miles without a single issue. If you can find one of those, I think it's your best bet. - Jerry Reynolds
Abel U.
Thanks for everything. I listen to the show every Saturday morning. I am going to see Bob Smith Toyota this week.Does Rav4hybrid qualify for tax code179? I am an Uber driver and want to take advantage of the tax code.
Jerry Reynolds
Hi Abel - we emailed you our link to Tax Code 179 last week. Did you get all the information you needed? - Jerry Reynolds
Randy D.
I really appreciate you and your website. Very informative. We will in the market very soon as my girlfriend, wife and lover of 30 years (all the same of course) says her 2014 Passat is "to Low" and wants to be up higher when she drives.
If mama ain't happy ain't nobody happy!
David W.
Excellent information regarding rebates with one exception. You state that you won't accrue interest if you pay in full before the first payment is due. Not true, interest starts accruing from the day you sign the financing papers so is best to pay off the car in full as soon as you can.

All loans start accruing interest from day one and is why payments are different for a payment due 30 days after signing the loan papers vs. first payment after 45 days, 15 days of interest are added to the loan in the second case.

Interest on the first payment is the largest of any payment and depending on the loan amount it could be a dollar or two per day or more so the sooner you send the finance company a check, the lower the payoff will be.
Jerry Reynolds
You could be correct, but my understanding and experience is that the interest is not added until the first payment due date. I have done this myself, paid off a car about 3 weeks in and the payoff was the exact same amount as the bottom line that was financed. Again, you could be correct, but that is not my understanding. - Jerry Reynolds
Norah S.
I love your show and try never to miss it. I need your advice on which van to buy since I am going to have to load a little scooter in the backend to take with me when I need to walk a great deal like a the auto show. There are so many to choose from that I need the field narrowed down some. Looking forward to hearing from you sir. Your show is just great! I am learning so much from you.
Jerry Reynolds
For me, it's a bit of a tossup between the Odyssey and the Sienna, but most people who have scooters and wheelchair lifts favor the Odyssey, seems they are easier to convert. We have good Honda dealers all over at our website under CERTIFIED DEALERS. I hope you have a great New Year. - Jerry Reynolds
Sam D.
Great article. Would like to know additional details about leasing. Specifically How to position myself so I don't have to come out of pocket with cash each new lease. Defence from finance companies from different prices on old lease vehicle pay off if you do or don't finance new lease with them. I was told thousands more if I did not finance new lease with them
Jerry Reynolds
Click the FAQ page near the top right of our website, I have a whole section on leasing, including what to do at the end of a lease, which can make a lease a lot cheaper overall and could prevent you from coming out of pocket with any cash. Using our dealers to lease from can save you a lot of time and money. I wish you the best. - Jerry Reynolds