What exactly do they mean by “cash back” on a new car?
Cash Back – does this mean you take a loan for $20,000, the car costs $18,000, and you get $2,000 back? Can you just take a loan for $18,000?
It means there is a fixed discount on the car regardless of how you choose to pay for it.
If the car costs $20,000 and it comes with a $2,000 Cash Back that means that if you buy the car for $20,000 they will write you a check for $2,000. What you decide to do with that $2,000 is up to you… but typically people put it against the loan they are taking on the car.
If you were to may cash for the car, which some people actually do, they can pocket the money or spend it on options they weren’t necessarilly going to purchase for the car.
The question is what is the $2,000 off of? If they jack up the price $2,000 and offer you a $2,000 discount you haven’t really saved anything have you?
It use to be called a rebate. Apparently that word is out of favor with auto manufacturers today.
Just a nitpick on dolphinboy’s post, but if you read the fine print on a lot of new car deals nowadays, the rebate or Cash Back MUST be applied to the new car.
They had to do that because with the 0% rate craze, a lot of dealers were getting hit with people who would take the 2K or more as an interest free loan, thus costing the companies even more in finance charges.
Keep in mind that some states tax pre-rebate pricing. So if it’s a “rebate” you may get sales-taxed on the whole $20,000.