Sometimes car dealerships will advertise "cash back" on certain models. There are different types of cash back incentives, or rebates, available. This money can serve two different purposes.
Often, a customer can choose between getting cash and receiving a low or 0 percent APR on their financing. It is then up to the buyer to figure out which incentive would result in the best deal.
Why Dealers Offer Cash Back on Certain Vehicle Models
When a manufacturer wants to sell more of a certain vehicle model, they instruct dealers to give a certain amount of cash back to buyers ("consumer cash"). Automakers may also offer a "loyalty bonus" to returning customers or a "conquest bonus" to shoppers who are switching over from a competing brand.
Automakers can also incentivize dealers with something called marketing support. One version of this type of support is called "dealer cash." This money pays for marketing materials or the dealer can choose to pass it on to car buyers. Dealer cash goes to customers in order to close a deal or to move certain vehicles off the lot faster.
Choosing Between Cash Back and a Lower APR
Frequently, dealerships offer an incentive called "low APR financing." This allows qualifying customers to receive a low (sometimes zero percent) interest rate on their auto loan. Normally, a customer must have excellent credit in order to receive zero-percent interest or low APR financing. Also, the buyer will finance through a manufacturer's "captive lender." This type of finance company is a subsidiary of the manufacturer and exists to provide financing to consumers who purchase their vehicles.
Customers can sometimes take advantage of both cash back and a lower APR. But usually they have to pick one or the other. When faced with this choice, car shoppers should do the math in order to figure out which incentive would save them more money.
For buyers with bad credit, the decision is easy. It's likely that these customers won't qualify to receive a promotional APR, but they can get cash back.
The Best Way to Use Cash Back on a Car Purchase
When a customer is entitled to cash back on a vehicle purchase, the dealer can either issue them a check or subtract the rebate amount from the car's selling price. If cash back is applied toward the car purchase, it becomes part of the down payment.
Unless the buyer needs the money right away for other purposes, putting a cash back incentive toward a down payment is a good option. Having a larger down payment will reduce the total amount of the loan and allow the buyer to pay less in interest chargers over the loan term. Also, putting a decent amount of cash up front helps build equity in the vehicle.
For car buyers with bad credit, a larger down payment is even more important. Because it reduces the amount of the loan, it can also increase an applicant's approval chances, since a smaller loan poses less risk to a lender. In addition, providing a large down payment can reduce monthly payments, making the cost of car ownership more affordable.
Car Buying Assistance for Buyers with Credit Issues
If you have bad credit or no credit and need to buy a vehicle, CarsDirect can help. We understand that the car buying process can be frustrating for consumers with less than perfect credit. And if you're tired of being denied opportunities, we're ready to get to work.
We can match you with a dealership in your area that can work with unique credit situations. This service is absolutely free and comes with no obligations, so you have nothing to lose. Go ahead and fill out our simple 1-Step Auto Loan Request to get started today.