"Cash back" is a term frequently heard or seen in sales advertisements from dealerships. The dealers usually provide the price of the car and then stress that you can get cash back with signing. Unfortunately, they often don't detail exactly what cash back means or what is involved, which can leave you with questions.
Cash back is a rebate that auto manufacturers, not dealerships, provide. The manufacturer authorizes the dealerships to advertise a rebate on particular models. You finance the entire cost of the vehicle that has the cash back offer, and then the manufacturer gives you money back in the advertised amount.
How to Use the Rebate
You can use your cash back rebate on anything you want, and in this way cash back rebates are nice small loans. However, it's better to put the rebate back into your car by using it to cover the down payment or other fees. This is because you've already taken out the financing loan for the vehicle cost. If you don't reinvest the rebate, you really don't get a discount on the cost of the car. You have to decide whether it is more important for you to have the money available immediately to cover other costs. This may depend on the amount of the rebate.
When a manufacturer offers a cash back rebate on a particular vehicle, it does not mean that the vehicle is of any lower quality or value than the other vehicles the manufacturer produces. Rather, cash back rebates simply mean that a manufacturer wants to sell one vehicle more than other models. A common reason for this is the need to make room for the next year's model. The higher the rebate, the more likely it is that the manufacturer is desperate to move the car. Cash back rebates provide some indication of how well a manufacturer is doing.
Cash back typically applies only to new cars and goes directly to the consumer. Other incentives are available for the dealer and and leased vehicles. An example is dealer cash incentives, which are payments made to a dealer upon the sale of a vehicle to defray marketing and lot costs.
Cash back rebates are a marketing tool manufacturers use to draw consumers to particular vehicles. The more a manufacturer wants to sell a vehicle, the more aggressively the manufacturer will market that vehicle. If manufacturer is doing well, it might not advertise the rebate. It's a good idea to ask your dealer or contact the manufacturer regarding what rebates are available before you go shopping.
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