By John Campbell
If you’re in the market to finance a brand new automobile you may find numerous manufacturer incentives available that can help sweeten the deal.
Many automobile manufacturers love to offer incentives to help clear out older stock that is taking up space on dealer lots. They may want to clear out this year’s model of a certain automobile to make room for next year’s model. U.S. automobile manufacturers General Motors (GM) and Ford are currently operating deep in the red and may also offer many more incentives to help sell more cars.
The most common incentives offered by manufacturers include extremely low rate financing deals or factory-to-consumer rebates. To qualify for most manufacturer sponsored incentives your credit score may need to be in the excellent range (730 or higher). If you qualify you’ll likely be given a choice of either low rate financing or the rebate. Before you make your decision there are some things you’ll want to consider.
Some manufacturers will offer you a whopping zero percent financing deal. Before you get too excited about not having to pay any interest on your loan, there will likely be a huge catch. With many zero percent financing deals you’ll have to pay back the loan within 24 - 36 months. With most regular financing deals you would qualify for you would have 60 - 72 months to pay back the loan. Can you afford to almost double your monthly payments to get such an excellent interest rate on your loan?
Factory-to-consumer rebates are often a better deal, even if you qualify for zero percent financing. The rebates tend to be a better deal because, even with up to a 10 percent interest rate, you may pay less in financing costs when you get the rebate. For example, let’s say you can choose between a zero percent interest rate on a $15,000 car or a $3,000 rebate on the car. You’ve been pre-approved for a loan from your local credit union at 6 percent interest to pay for the car. If you choose the zero percent financing deal from the manufacturer you’ll be financing $15,000. If you choose the rebate, you’ll only be financing $12,000 at a 6 percent interest rate. Even with a higher interest rate, you’ll save more money by choosing the rebate.
You’ll have to do a little math to find out which of the incentives is better for you. The size of the rebate and the difference between the low interest and regular interest rate you may qualify for should all be calculated. You should tally both the overall purchase price with the rebate and with the lower interest rate. Whatever saves you the most money should be what you go with.
If a factory-to-consumer rebate saves you the most money, don’t allow the rebate to be factored into any of your negotiations with the auto dealership. If you’re trying to talk down the purchase price of the car an unscrupulous dealer may argue that the rebate is already lowering the profit margin on the car. Not so. If you purchase a car for $14,000 and get a rebate for $2,000 the dealer still gets the full $14,000 asking price for the car. A rebate should never keep you from saving even more money on the purchase of your car.
Manufacturer incentives can be an excellent way to save money on the purchase price of a car if you choose the one that’s best for you. Be patient, do your homework and you’ll save a nice chunk of change once it’s time to sign for your loan.
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John Campbell is the writer and editor of CashBuzz, A financial portal for the rest of us. Check out cashbuzz.com for the latest articles on money management and tips and tricks that can help improve your finances. This article may be reprinted on your Web site if the copyright, author information and active link are included.
