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The 5 Most Common Myths About Rebates

By Michael Royce
Consumer advocate, former car salesman

Rebates for new cars and trucks are bigger than ever. And unfortunately, so are the confusion and misconceptions about them. To make matters worse, it's common for some dealerships and car salesmen to purposely mislead you about how rebates work. Well, fear not. Let's dispel, once and for all, the five common myths about factory-to-customer rebates:

MYTH 1:
Rebates are a bad deal because there is always a catch.

Not true. There is no catch to factory-to-consumer rebates. A rebate is simply free money given to you by the automobile manufacturer as an incentive to buy that particular car. So take the money and smile.

MYTH 2:
Rebates are part of the dealership's discount.

Despite what an unscrupulous car salesman or Sales Manager may tell you, factory-to-customer rebates are NOT part of the dealership's discount. Rebates are simply free money given to you by the factory and should not be confused with the negotiated selling price. Be sure that you make clear to the salesman when you are negotiating the price of your new car or truck that the rebate is yours to keep and that the negotiations have nothing to do with the rebate.

MYTH 3:
Rebates are always paid in cold cash.

You have a choice here. You can take the rebate as cash if you wish, in which case the automobile manufacturer will mail you a check. But most folks simply apply the rebate to their down payment and never see the cash. For example, if you applied $1,000 of your own cash plus a $500 rebate to your down payment, your down payment (in most states) would appear in the paperwork as $1,500. In fact, that's the best option if you plan on financing - and particularly if you don't have much money to put down. Insiders Tip: If you are short of cash, look for vehicles with big rebates. It's possible to buy a new car with NO cash simply by using the rebate as your down payment. And there's sometimes one more option: many automobile manufacturers offer special financing instead of a rebate. That can save you lots of money on financing costs. (See "A Word About Special Financing" below for more info.)

MYTH 4:
Rebates are always subtracted from the negotiated selling price.

Car salesmen (and dealership ads) sometimes infer that the rebate is automatically subtracted from the purchase price "You can buy this $19,000 car for only $18,000 after the $1,000 rebate!" These claims can be misleading. More to the point, they may actually be untrue. In most states, the rebate is considered part of your down payment. If so, the way it works is this: first the dealership adds up the negotiated purchase price, applicable taxes, license fees, doc fees, etc. into a grand total. THEN they subtract the down payment - including the rebate - from that total price. That's the legal manner in which rebates are handled in most states. NOTE: In some states, the rebate may, indeed, legally be subtracted from the selling price of the vehicle before taxes are added in. Be sure to ask your car salesman about the laws concerning rebates in your state.

MYTH 5:
All rebates are the same nationwide.

Automobile manufacturers can, at any time, access their computers' databases and instantly know how many vehicles there are "on the ground" (sitting for sale on the dealerships' lots) across the nation. If there are too many vehicles of a particular model in a particular region, the manufacturer may offer a rebate to consumers as an incentive to buy those cars and get them off the dealerships' lots. Because the inventory of vehicles varies from region to region and month to month, rebates can also vary from region to region and month to month.

A Word About "Special Financing"
Some auto manufacturers may offer you a choice of taking special low financing (with interest rates sometimes as low as 0%) instead of a rebate. Which is better? If you are short of cash, you'll probably want to take the rebate and use it for your down payment. If you have ample cash on hand for your down payment, the special financing may be the way to go -- you could end up saving hundreds or even thousands of dollars in interest costs over the course of your loan.

See the current rebates and incentives.

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