The average cost of a new vehicle is more than $28,000. It's no surprise, then, that consumers would want to find the best deal possible when purchasing a new car. Auto companies saturate consumers with television, radio, newspaper, magazine and internet advertisements for vehicles, and the promotional offers that go along with them. From zero-percent financing to cash back, read on to find out what you're really being offered, and how to evaluate what it's worth.

IN PICTURES: 5 Ways To Control Emotional Spending

Zero-Percent Financing
Most people need to finance a vehicle purchase rather than pay cash. An auto dealer would love to provide you with a loan for your new car, and typically borrowers will pay interest in the form of the annual percentage rate (APR). Sometimes, however, dealers offer zero-percent financing which can save hundreds, if not thousands, of dollars over the course of the loan.

Though zero-percent financing is a great deal, not everyone gets approved. Often, a zero-percent financing deal is advertised "for well-qualified buyers" only; this means buyers with an excellent credit score. All others will have to pay some degree of interest on the loan.

If you do qualify for zero-percent financing, be aware that these loans are often shorter, requiring a larger monthly payment. In addition, it is important to avoid becoming so enamored with the great financing deal that you forget about trying to get the best price for the vehicle. Even with low financing you are still in a position to bargain for the lowest price possible. Zero-percent financing is not a fantastic deal if you can't make the monthly payment or you are overpaying for the car.

Cash Back
A cash back offer is a discount off the MSRP (manufacturer's suggested retail price). Except in rare cases, cash back does not provide a purchaser with any cash; instead it is a type of dealer-to-buyer incentive that provides a reduction on the price of the car. Dealers usually don't offer both zero-percent financing and cash back incentives - you have to choose one. Do the math to find out which deal is better. Compare the total cost of the car with zero-percent financing, to the cost of financing the loan with the reduced price (the cash back price).

You can also ask your car salesperson to go over the details with you. He or she should be able to provide you with an analysis of which offer will provide you the best deal. (Learn more in Car Shopping: New Or Used?)

Dealer Rebates / Dealer Incentives

A dealer rebate is a factory-to-dealer incentive (provided by the manufacturer to the dealer) that reduces the actual cost the dealer must pay to buy the vehicle from the factory. Sometimes dealers will pass these savings on to the customer in an attempt to liquidate the inventory; for example, to meet a sales target. Dealers are most likely to extend the rebate to buyers who purchase a vehicle that has been in the showroom for a while (i.e. one that they are anxious to get rid of). The rebate, when passed on to the customer, provides a discount off the total price of the car. Since these rebates are usually small, they can sometimes be combined with other offers such as low or zero-percent financing.

Free Gas Cards
Some manufacturers incentivize customers by offering a free gas card with the purchase of a new vehicle. Suzuki for example, is currently offering a prepaid gas card ranging from $280 to $442, depending on the model. The dollar value is supposed to pay for three months of driving or 1,000 miles per month. While this type of promotional offer may not be as valuable as a cash back offer, it usually comes no strings attached - as long as you purchase the correct model. (For more, see Getting A Grip On The Cost Of Gas.)

Do Your Homework
Even with zero-percent financing or cash back incentives, the best way to make sure you are getting a good deal is to do your homework. The True Market Value (TMV) service at www.edmunds.com, calculated using such factors as vehicle inventories, dealer incentives and economic trends, allows consumers to determine the price they should expect to pay for a certain vehicle. Being armed with this information going into the dealership can provide buyers with the confidence they need to challenge the dealer's asking price, and score a better deal. Rarely should a buyer expect to pay the MSRP of a vehicle.

The Bottom Line
All of these promotions come with small print. Before signing on the dotted line, it is usually beneficial to take the time to evaluate the different deals to determine which will work best for you. Buyers who do their homework and who understand the different offers usually drive off with the best deal. (To learn more, see The True Cost Of Owning A Car.)

Catch up on the latest financial news; read Water Cooler Finance: Shocking Court Rulings, Sinking Markets.

Related Articles
  1. Investing Basics

    10 Companies That Yuppies Love

    Learn about 10 companies loved by the modern Yuppie, including how this demographic's impressive buying power has boosted these companies' earnings.
  2. Home & Auto

    5 Cars That Will Save You Money in 2015

    Learn which cars will save you money in 2015, whether you are looking for a compact, mid-size or full-size car, or even a pickup truck.
  3. Stock Analysis

    Is the Apple Watch a Real Threat to Fitbit?

    Examine the potential for marketplace competition between Fitbit and the Apple Watch in the rapidly growing consumer wearables industry.
  4. Investing News

    How 'Honesty' Could Pay off for Jessica Alba

    Is it possible that Jessica Alba is one of the savviest businesswomen on the planet?
  5. Stock Analysis

    What Drives Ford's Profits? Not Just Cars

    Ford, an experienced legacy car manufacturer, sells a lot of cars around the world and makes a lot of money in the money lending and leasing business.
  6. Personal Finance

    Invest in Costco? First Understand Its Balance Sheet

    A strong balance sheet sets a company apart and boosts investor confidence. How healthy is Costco based on an analysis of its balance sheets from the last two years?
  7. Mutual Funds & ETFs

    Top 3 Auto Industry ETFs

    Obtain information about some of the most popular exchange-traded funds investors utilize to get exposure to the automotive industry.
  8. Investing Basics

    The 5 Reasons Why RadioShack Went Out of Business

    Learn five reasons why RadioShack went bankrupt: store concentration, online competition, product concentration, management issues and financial missteps.
  9. Stock Analysis

    3 Stocks to Protect Your Portfolio from Inflation

    Discover three stocks to protect portfolios against inflation. The best companies to protect against inflation are those with pricing power.
  10. Chart Advisor

    Invest In Consumer Staples With This ETF

    The consumer staples sector is showing signs of strength in a weak market. We'll take a look at a couple ways to make a trade.
RELATED TERMS
  1. Substitute

    A product or service that a consumer sees as comparable. If prices ...
  2. Fast Fashion

    Definition of "fast fashion."
  3. Duty Free

    Goods that international travelers can purchase without paying ...
  4. Online-To-Offline Commerce

    A business strategy that draws potential customers from online ...
  5. Chargeback Period

    The timeframe during which a credit card issuer can dispute with ...
  6. Fast-Moving Consumer Goods (FMCG)

    These are consumer goods products that sell quickly at relatively ...
RELATED FAQS
  1. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  2. How can I invest in electronic retailing (e-tailing)?

    Electronic retail is one of the fastest growing segments of the economy. Every year, more people are choosing to purchase ... Read Full Answer >>
  3. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Just-in-time (JIT) inventory management focuses solely on the need to replenish inventory only when it is required, reducing ... Read Full Answer >>
  4. What are some common ways product differentiation is achieved?

    There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
  5. What economic indicators are important to consider when investing in the retail sector?

    The unemployment rate and Consumer Confidence Index (CCI) rank as two of the most important economic indicators to consider ... Read Full Answer >>
  6. What factors make it difficult to compare performance ratios between retail stocks?

    Companies that operate in the retail sector significantly differ in terms of their profitability and efficiency, making stock ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!