Are Zero-Percent Financing Offers Too Good to be True?

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If you’re like me, shopping for a new vehicle means searching for a bargain. So when you see “zero percent financing”, you ask yourself “how can I get better than that?” And, I agree – it sounds like a tremendous offer. Unfortunately, in most cases, these offers are too good to be true. But… with a little extra research, you’ll find that there are, in fact, better financing options there.

And, as always, we’re here to help!

The Finest of Fine Print

You know the phrase “Always check the fine print”? It probably started with car dealer promotions. We all know what’s happening here, but let’s say it out loud anyway – dealerships advertise zero percent financing to get shoppers onto their lots. Once you’re there, the games begin. You find out the offer only applies to select new models and well-qualified borrowers (700+ credit score). Often the terms of the loan will be at 60 months, leading to a higher monthly payment than some buyers are comfortable with. It’s shocking how many disclosures these offers typically entail and almost all of them could impact your future payments and total cost of ownership.

Let’s Do The Math

Consider the scenario where you have the necessary credit score and the monthly budget is no issue. You’re ready to accept the zero percent financing promotion and make your offer, only to discover the sale price is non-negotiable. Sticker price only. Industry publications (and a million car-buying blogs) have well established that a new vehicle 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 make decent down-payment, you’re looking at negative equity in your vehicle soon after purchase, which is a pretty risky spot to be in. You’ll want to make sure you have the appropriate insurance to protect yourself should something happen to the vehicle in the early months, even years, of your loan.

What About Rebate Offers?

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

Zero Percent Financing Offer Rebate Offer
Sales Price $20,000 $18,000
($20,000- $2,000 rebate)
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, that offer ends up with 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. But be mindful, when accepting a dealership rebate, it’s likely you will be required to finance through the dealership, thus limiting your financing options.

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 TrueCar 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.

Do the Work

If I could offer just one tip for a better car buying experience, it’s this: Do your homework. Yes, zero percent financing can feel like a financial benefit when buying your next vehicle, but it often gives consumers a false sense of savings with lots of stipulations. If you take the time to research and really consider your wants vs needs as well as your monthly budget, 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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