Is Zero Percent Financing a Good Deal?

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When it comes to shopping for a new vehicle, everyone wants a deal. And you might find yourself asking “could there possibly be a better deal than zero percent financing?” It sounds like a tremendous offer; like many things, it’s likely too good to be true. With a little bit of research, consumers may find that there are better options available.

Simply put, dealerships advertise zero percent financing to get people onto their lots. Once there, they typically find that the offer only applies to select new models and well-qualified borrowers (700+ credit score). The loan term is often capped at 60 months, which means a higher monthly payment than some buyers are comfortable with. But say you decide to proceed and purchase the selected model, you have the required credit score & the payment will work for your budget. Did you check the fine print? You may discover there that even a single late payment will increase the rate.

Doing The Math

If you decide to go with a new vehicle purchase and take the zero percent financing offer, you can expect that negotiating the sale price is unlikely. Industry publications have well established that a new vehicles depreciates as much as 11% the moment you drive the car off the lot and up to 25% in the first year of ownership. So, unless you put money down, you will have negative equity soon after your purchase. You’ll want to make sure you have the appropriate insurance to protect yourself should something happen to the vehicle in the early years of your loan.

Rebate Offers as an Alternative

For eligible borrowers who don’t fit the narrow conditions of the zero percent offer, dealerships may present an alternative: a rebate. Let’s compare these choices using a $2,000 rebate as an example:

Zero Percent Financing Offer Rebate Offer
Sales Price $20,000 $20,000- $2,000 rebate= $18,000
Interest Rate 0% 2.49%
Loan Term 60 months 60 months
Payment $334 $319
Total Interest Paid $0 $1,163.54
Total Paid $20,000 $19,163.54

With the rebate essentially functioning as a down payment, the rebate offer has a lower monthly payment and slightly less paid for the vehicle by the end of the loan. And, with a rebate, you may find that you have a better chance to negotiate the sale price. Looking at the two offers side-by-side, the better option for your wallet seems clear.

A Few Car Buying Tips from your friends @ Call Federal

  • Determine a monthly payment that fits comfortably into your budget before going to the dealership.
  • Do your research by using online portals such as True Car that compare similar sold vehicles in your area.
  • Consider the car that meets your needs rather than the interest rate that does.
  • Negotiate the sale price.
  • Get pre-approved with your credit union. It doesn’t get much easier than Call Federal’s Car Buying Program.
  • If you choose dealership financing, remember you can refinance with your credit union at any time.

Final Takeaway

If I could offer you just one tip for a better car buying experience, it’s this: Do your homework. Yes, zero percent financing is flashy and seems amazing, but it often gives consumers a false sense of savings that are just too good to be true. But if you take the time to research and really consider your needs vs wants, you’ll be in a better place to protect yourself and make a more confident car-buying decision. Let us know if we can help at any of the steps along the way.

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