Why Car Loan Incentives Usually Aren’t Worth It

Aren’t car incentives the best? When you see exciting commercials with close-ups of your favorite car zooming down curved mountain roads overlooking the ocean’s crashing waves, you know for sure it’s the vehicle for you. It only gets better when they flash the amazing zero-percent financing/$4,000 cash back offer that “you don’t want to miss.”

After the commercial ends, you find yourself wanting to lace up your shoes and race to the nearest dealer. Before you do, why not take a look at a few things you should know about car incentives first?

The Types of Incentives You Can Expect

There are usually three types of incentives that you can expect to see from an auto manufacturer: The cash back rebate, the low financing APR or the special car leasing option. Depending on the manufacturer, you may see all three being offered for the same vehicle. Let’s take a closer look at how they work:

• Cash back: Typically, a specific amount of money is offered as instant savings (i.e. $4,000 is taken off of the total price of the car).
• Low financing APR: A manufacturer or dealer may offer an interest rate as low as zero percent, which means you would pay nothing extra over the actual price of the car (with the exception of administration fees, taxes, etc.).
• Special leasing: A special leasing deal could mean you are given a much lower monthly rate than average cost to lease a car.

In addition to new car deals, you might run across used car rebates, though they are pretty rare. Also, some manufacturers offer deals for their hybrid vehicles in addition to the tax breaks for hybrids you could already receive.

The Hidden Details of Car Incentives

While there are great new car incentives available to car buyers, it’s always good to read the small print before committing to the loan. Here are just a few of the new car deals and incentives details you could fail to see:

• You need perfect credit: To qualify for zero-percent financing or a low APR, you typically need a credit score in the upper 700s. If you have the dealer run your credit (which shows up as a lender inquiry) your score could go down. This is why it’s good to check your credit score before even walking out the door.
• You need a lot of down payment money: You might see a low APR, but in order to qualify, you have to put down $4,000. For some, this is more than they may anticipate spending up front but don’t know it’s required until they get to the dealer.
• You must finance with the dealer: Some dealers will offer a great cash back offer, but in order to qualify, you have to apply for car financing with a lender associated with the dealer only.
• There could be a multitude of conditions with special leasing: You may find that with a special leasing deal you have to have near-perfect credit, keep the car in near-perfect condition, drive under a low number of miles, etc. In the end, the terms may not be worth it.
• Other back-end adjustments could apply: You could also find that a dealer will allow you to take the cash back offer, but then charge you a high interest rate so you still end up paying pretty close to what you would have saved.

Also, it’s good to keep in mind that some blowout car incentives occur as a result of car recalls (Toyota had summer long incentives to make up for its major recall). So before you agree to a vehicle with tons of incentives, it’s good to check its background. If it’s been recalled, think about whether purchasing a recalled car is safe.

Making the Best Decisions When Buying a Car

Sometimes, new car incentives and rebates sound so good that you end up making choices that don’t benefit you in the long run. It’s for this reason that you don’t want to:

• Buy a car you can’t afford because you want the rebate: Suppose you were dead set on buying a specific car that fit your price range in a multitude of ways, but when you get to the dealer you end up buying a car that comes with higher part and insurance costs. While the cost of the vehicle may be the same, the additional costs associated with it could force you to pay more over time.
• Take a lease when you want to buy: You head to the dealer certain that you will purchase a car in a specific price range, but when you get there you are coerced into leasing a more impressive car with a lower monthly payment. The only problem is that you have to give the car back at the end of the term and have a ton of restrictions to consider.
• Forget to negotiate: A special rebate or interest rate sounds good–so good that you forget to actually negotiate the sticker price of the car. This could hurt you because you could save even more on the price of the car if you try to talk the dealer down.

To avoid the problems associated the excitement of auto loan incentives, it’s good to set the price you want to pay (incentives included) ahead of time and rehearse your interactions with the dealer. This way, you could take advantage of the best new car incentives out there without cheating yourself by making rash decisions along the way.