Car manufacturers use incentives to make their new cars more affordable during limited-time promotions.
The most common incentive is a direct to customer rebate, although there can also be other incentives such as low-interest loans, 0% APR loans, special car lease deals, and “hidden” factory-to-dealer cash.
Incentive programs vary from month to month depending on which models and styles manufacturers feel need sales “help”. Slow selling models or last-year’s leftover vehicles typically get the best rebates and incentives. However, it not ususual for a brand new model to get good rebates or other incentives.
A rebate is a credit that you receive when you buy a new car during the promotional period. It shows up on your paperwork the same as a down payment, although the money comes from the manufacturer’s pocket, not the dealer’s, and is like a gift to you that reduces the amount you pay for your car.
However, a rebate is not a price discount. It doesn’t change the selling price of the car (although it changes what you pay). Rebates and discounts are NOT the same, although both reduce the amount you pay for a car. Let’s explain.
Because a rebate is like a down payment, sales tax is calculated on the price of the car BEFORE the rebate is applied. It doesn’t reduce the sale price of the car, although it does reduce the amount of money that comes from you. In other words, you pay sales tax on the entire sale price of the car, which includes the rebate.
A price discount is different. A discount reduces the actual selling price of a car, and sales tax is based on selling price. Therefore, you don’t pay sales tax on a discount.
So given two cars at the same price where one has a $2000 rebate and the other has a $2000 price discount, choosing the car with the $2000 discount saves you sales tax money. However, you may want to choose the car with the rebate if you are short on down payment cash, since a rebate acts as a down payment.
For information about current rebate offers on new car models, see Best Car Deals.