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Understanding New Car Incentives and Rebates

New Car Incentives vs. Interest Rates

When you’re shopping for a car, salespeople may offer special incentives to try to sweeten the deal, but these could come at the cost of a higher interest rate. Find out how interest rates and incentives compare to each other.

There are a variety of methods used to entice consumers to buy vehicles. Terms like “incentive,” “rebate,” “discount” and “consumer cash” describe a way of discounting a vehicle’s price to attract buyers. Whatever their title, these incentives and rebates usually take the form of cash-back offers, which can be in the hundreds or even the thousands of dollars. Some dealerships offer special incentives for students, veterans or the disabled - so you should always ask your dealer if any such rebates exist and if they apply to you. Other times, the rebate has been factored into the purchase price and exists as a sales stimulus. For a customer, the idea of instant cash back, which really amounts to a lower sticker price, can be very alluring.

Information on rebates may not be disclosed until discussions of financing have occurred in an effort to close the sale. By receiving car incentives and rebates at a critical moment in negotiation, a customer may end up making an impulsive decision to purchase. That said, sometimes a financial rebate comes with strings attached, which can take the form of a requirement that the buyer use dealer or manufacturer  financing - potentially at a higher rate than he or she will qualify for a bank or credit union. If you make a purchase without reading any fine print about supplemental requirements that rebates impose, you might actually wind up with a worse deal than you think.

Rebates vs. lower APR?

Let’s consider an example: imagine you saw a vehicle listed for $32,000. You offer to put $4,000 down during negotiation, and the dealer tells you can receive a $500 cash rebate if you agree to dealer financing for a 60-month loan at 5.5% APR. Under this scenario, not only would you have a hefty monthly payment of $534, you would end up paying over $4,000 in interest over the period of the loan.

On the other hand, if you seek out preapproved financing, you can secure a lower interest rate before you negotiate. That way, you’ll know exactly what you’ll be paying when you budget for your next automobile purchase.

Now, let’s assume that with preapproved financing from Nationwide, you can purchase the same automobile and have as little as 3.10% APR over the same 60-month period1. Factoring in the $4,000 down payment, using pre-financing would reduce your monthly payment and, most importantly, cut your interest payment by nearly 50%, or about $2,300. You can still inquire about rebates during the sales process, but this way you avoid any additional entanglements that rebates sometimes demand.

Preapproved auto financing

New car incentives and rebates are only one factor in how interest rates are determined. For information on another essential portion of a new car purchase, vehicle financing, see our page on preapproved financing and fill out an application. Receiving a loan preapproval from Nationwide is quick and easy - the process usually only takes 15 minutes or less!

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