What is a rebate?

A rebate is a refund offered to a customer by a manufacturer, distributor or retailer when a customer makes a purchase. Sometimes referred to as a retroactive discount, rebates are often used as an incentive or marketing tactic to attract customers. 

Rebates are offered on a variety of products and services and can benefit both buyers and business owners or manufacturers. Read on to learn more about rebates, how they work and some examples of common types of rebates.

Key takeaways

  • Rebates are a type of retroactive discount offered to customers when they purchase a product or service.
  • To receive some types of rebates, customers may need to do things like sending proof of purchase to a manufacturer.
  • Many different types of businesses offer rebates as incentives for customers. 
  • Vehicle rebates, mortgage rebates, energy rebates and medicine rebates are some examples.

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Discounts vs. rebates

Although discounts and rebates are often considered the same, they’re not. 

A discount is given at the time of purchase and is a percentage of the sales price. A rebate is a refund offered by the manufacturer or distributor and is processed after a transaction is completed.

How do rebates work?

Rebates work by helping to put money back in the customer’s pocket. This could be through a check, gift card, credit or some other form of payment. But customers may need to mail in a form with proof of purchase, submit information online or go through another process to earn their rebate credit. 

For a business, rebates can help build customer loyalty and encourage customers to become repeat buyers. It can also help drive profit when managed properly. 

When a manufacturer or retailer offers a rebate, they’re providing a discount on the product or service. So there are potential benefits for both consumers and business owners.

Types of rebates

Rebates exist for a variety of goods and services, like:

Vehicle rebates

Vehicle rebates offer cash back to buyers when they purchase a new car. Although not all manufacturers offer rebates, they’re typically offered as a means to incentivize the purchase of higher-end, more expensive packages. If you’re counting on a rebate, be sure you understand all the qualifications and terms before you buy. 

Energy rebates

Energy rebates can help reduce the costs of upgrading to energy-efficient appliances and other renewable energy products. They may come in the form of tax credits for homeowners and companies that build energy-efficient homes and buildings. 

Rural energy rebates

The rural energy rebate program is designed to provide agricultural and rural businesses with energy-efficient systems and improvements. 

Mortgage rebates

When shopping for a mortgage, lenders may offer incentives like lender credits or reverse points, which can help offset closing costs—but usually in exchange for a higher interest rate. There may also be separate tax-related rebates associated with mortgages.

Affordable Connectivity Program

To help make internet access more affordable, the FCC has a program called the Affordable Connectivity Program (ACP). The ACP offers rebates for qualifying households on computers, accessories and internet service.

Recovery rebate credit

During the COVID-19 pandemic, the government sent out economic impact payments—better known as stimulus checks—to help offset job losses and layoffs. For many people, those payments were essential. Those who didn’t receive what was expected during any of the three disbursements may have been able to get a recovery rebate credit when filing taxes.

Medicaid drug rebates

One program designed to offset the costs of prescription drugs to patients is the Medicaid Drug Rebate Program.

Rebates in a nutshell

Rebates on energy, mortgages and medicine are a few examples of rebates that can help save money. Sellers and manufacturers use rebates to attract clients and customers. And rebates can offer cash back for a product or service already used. 

Done reading about rebates and looking for more ways to increase your financial literacy? Learning how to manage your money is an important step to help you reach your short- and long-term financial goals. And paying off debts, building up emergency funds and planning for unexpected expenses can help reduce financial stress and give you more peace of mind.

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