Decoding Car Deals: What's The Real Deal?

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.

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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.)

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