0% Financing — Great Deal or Not?
With an excellent credit score, 0% financing on a new car can indeed be yours. Something to strive for? Maybe, maybe not.
You may find you can get a better deal on an auto loan by going to your local bank or credit union. (Better than 0%, you ask? Read on...)
Here’s the thing: Before you sign on the dotted line, you need to be aware of the caveats (not to mention all the fine print details) associated with 0% financing.
1. Limited Models. 0% financing is normally offered on vehicles that have a very low demand. These vehicles typically depreciate faster and have a lower resale value than higher-demand vehicles. Another negative is some dealers force you to choose vehicles that are in stock, so you can’t choose color or options or other features you may want.
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2. Factory Rebates Don’t Apply. Generally, consumers must forfeit the factory rebate on their new vehicle in order to take the 0% financing deal.
3. Shorter Loan Periods. Most 0% offers are for short time periods — usually 12, 24, or 36 months. As a result, your monthly payment may higher than you had originally planned.
4. You May Not Be Eligible. Dealers often restrict 0% financing to those buyers with immaculate credit records and/or may require a large down payment. If you don’t qualify for 0% financing, you’ll likely be bumped up to a much higher interest rate.
In general, it’s important to carefully analyze all components of your dealer’s offers and compare them to other lenders. Take a look at things such as annual percentage rate (APR), length of loan and vehicle cost, because ALL of those factors will affect the final price you pay.
The following illustrates the advantages of an outside auto loan at 3.99% compared with a 0% dealer loan. When the rebate is used as a down payment on the vehicle to reduce the amount financed, the savings are clear.
Because of that $2,000 rebate, the loan amount was knocked down to $23,000 from $25,000. At 3.99%, interest only amounted to $1,442 over the life of the loan, saving the buyer $558 more than the buyer who took the 0%, no-rebate deal.
Our advice? Look at ALL options, including 0%, but also different loans and rates where you can keep all of the dealer perks and incentives.
Good Credit Gives You OPTIONS
We hope you’ve enjoyed this report...and we hope that we have convinced you that you CAN clean up your credit and save money on more things than you may have even realized.
If you are serious about conquering your credit, you may want to read more free credit advice at Dolans.com, including:
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