Buying a new car can be stressful. But driving that new car off the lot…now that’s fun! What is almost as much fun is cashing in on whatever rebate, cash back deal, or other combination of lures that dealer is dangling in front of your nose to earn your business. Some of these deals can be pretty sweet. I mean, who wouldn't want a lower APR financing rate or a $2,500 rebate (or both sounds pretty good too)?! But if you have to choose between a rebate and an incentive, here’s a handy guide to help you decide.

1. Know your options

First, you need to know what the dealer means when they say "incentive" and "rebate."

  • Incentive: An incentive is typically issued in the form of lower financing rates, which can go as low as 0.0% interest during slow months. Here, you will be financing the new vehicle through the dealership's finance department.
  • Rebate: A sticker price reduction issued in the form of a refund post-purchase. Typically you will be offered a rebate if you pay in cash, finance on your own, or combine the two. While there may be many names for rebates ("military," "student," "teacher," "loyalty," and "conquest" rebates are common names), they are all basically the same underneath.

2. Next, you need to understand how it works to accept a rebate deal and use it

Incentives are fairly straightforward—they lower the overall cost of the interest you will pay over the life of the loan. In terms of rebates, there are a number of ways you can apply your selected rebate.

  • Down payment: You can use the rebate amount as part of or all of your down payment towards the new vehicle.
  • Check: You can take your rebate as a "check in the mail."
  • Upgrades: You can apply your rebate amount towards the cost of desired vehicle upgrades.
  • Warranty: You can apply your rebate amount towards a warranty or other maintenance plan.


  • Vehicle you want: 2014 Toyota Rav4, MSRP $23,000
  • Dealer is offering: $2,500 rebate or 2.9% APR incentive

Option A: You take the rebate.

  • You could take the $2,500 as a check (mailed to you post-purchase).
  • You could buy down the purchase price by applying the rebate to the MSRP, so the car costs you $20,500.
  • You could purchase "extras" (trim, accessories, a warranty) with that $2,500.

Option B: You take the lower financing.

  • Here, you will also be choosing to finance your purchase through the dealer's finance department.
  • Be careful to do your research and make sure that what the dealer is offering is the lowest APR you can qualify for…anywhere.

3. Use one of the free online calculators to decide what’s the best (most lucrative) incentive and/or rebate deal for you

Trusted vehicle sites like Edmunds and have developed handy free calculators to help customers figure out whether a rebate or incentive really is a good deal—and if it’s the best deal you can get.

 Incentive/Rebate calculator tools:

4. Do your homework before you buy so you know the range of rebates being offered by other dealers

These online resources can help you learn about the range of rebates/incentives on the market. You can use this as a negotiating tool when the time comes. Resources are either listed by category, by make/model, or both. Experts recommend you will get the best deal by remaining flexible on brand as well as vehicle make/model.

Rebate/Incentive centers:

5. Set your desired purchase price first, and only then consider incentives/rebates

Finally, to get the best deal, experts state you must negotiate for your desired vehicle purchase price first, and only then consider what additional rebates and/or incentives the dealer may be offering (i.e., it makes no sense to accept a low APR or cash back deal on a vehicle that will still be out of your price range). Once you have the desired vehicle price negotiated, you can then proceed to look at options for rebate application and financing incentives.

Here is a step-by-step process you can follow:

  • Identify the desired vehicle by make/model/year/features.
  • Negotiate for a fair purchase price you can afford.
  • Negotiate for the best financing rate (talk to the dealer and also to outside banks and credit unions).
  • Negotiate for available rebates and select the best application.
5 Tips to Choose the Most Valuable Customer Rebate or Incentive When Buying a New Car