0% Zero Percent Car Finance – What You Need To Know
Have you seen a TV or billboard advertisement promoting zero percent financing on new vehicles?
What’s the catch with these offers? They sound like a great deal but are they?
As with any type of finance regardless of interest rate, there are always pros and cons – which are balanced out by sales price, features, benefits and restrictions. Zero percent financing is generally provided through the actual automakers finance arms and are generally offered during peak sales seasons. 0% is a widely used marketing tactic to sell slow moving vehicles or to peak interest in new models – it’s all about getting people into the showroom.
What are the benefits of zero percent car loans?
There are only a handful of benefits in terms of 0% financing when compared to other options. Below are some of the benefits to consider.
- Higher Car Value – With a 0% option, you may qualify to get a more expensive car or one that has all the bells in whistles in terms of a fully loaded vehicle with all the options.
- Cash buyers can keep their money – Those who may have been looking to buy with cash can use that money elsewhere. Investing it or paying down personal debt or a mortgage.
- Special rebates – Depending on the lender, they may provide additional incentives such as cash back rebates or certain add-ons like roadside assistance, free petrol and other items.
- Pay of your vehicle quicker – All payments go to paying off the principal of the loan which means the vehicle could be paid off sooner as long as you don’t have extended terms.
What are the negatives of zero percent car loans?
Depending on your financial back ground and credit history, terms for 0% loans may not be beneficial or worth considering. Below are important points to consider with no rate car loans.
- Qualifying – To qualify for a 0% car loan you must have excellent credit and a strong financial profile.
- Car price – The price is generally set with no room for negotiations. Essentially vehicles are sold at the manufactures full recommended retail price.
- No payment flexibility – The loan length and monthly repayments are set and final for the duration of the agreement. The only real flexibility may be no penalties or fees for early payouts.
- Car selection – Cars that come with a 0% interest rate offer are generally limited and reserved for slow selling vehicles or newly released. Not all cars at the dealership will be inclusive of the offer.
- The up or cross sell – As mentioned, 0% offers are to get people into the door. Once there, be prepared to hear every typed of up or cross sell available.
- Restrictions – One key element with zero percent financing are the limited options buyers have. Some common restrictions include length of loan, deposit amounts, car price, potential fees and limited car options.
- Potential trade in value – If you have a care you’d like to trade in and use its value towards your down payment…expect a below market value offer.
What’s better a flexible loan with a rate or zero percent financing?
The simple answer to this question is what is best for you after comparing all factors that should lead back to you getting the exact car you want at the best price. You just need to do your homework and decide what is best for you; don’t be pressured into a loan that you’ll regret later.
A great example is below:
This compares a 6% interest rate versus 0% on a $30,000 vehicle. There are a few assumptions being the following:
- Loan term of 36 months
- The borrower with a 6% loan is able to negotiate the vehicle price down to $27,000
| Vehicle Price | Term | Rate | Monthly Repayment | Final Price |
|---|---|---|---|---|
| $30,000.00 | 36 | 0% | $833.00 | $30,000.00 |
| $27,000.00 | 36 | 6% | $821.00 | $29,570.00 |
With the above example, you can see that the loan that has a 6% interest rate actually becomes cheaper than that of the zero percent deal. The option with the interest rate also has no strict restrictions on it; meaning the person could have bought any car on the lot and have the ability to negotiate on price and extras.
“In the end, stick to your plan and whatever type of financing works for you and your budget.”
At the end of the day, regardless if you already have financing in place or look into 0% offers; expect the dealership to try to sell you on some type of financing through them. It’s often a hard sell and can be frustrating. In the end, stick to your plan and whatever type of financing works for you and your budget.
To truly understand if you are getting the best deal, run all costs against the vehicle you want through a car loan calculator or speak to a professional. A financial counselor can help with understanding the numbers involved in any type of large purchase. Asset brokers are also a great source of professional advice as they can take you through numerous options and scenarios across car loans and leasing.