0% Financing On Your Next Car – Deal Or No Deal

Since not that long ago, a popular car financing made it on the scene in the form of zero percent financing offered by the various manufacturers.

Financing your new car with a 0% financing rate could sound like the cats meow… but it’s not the whole picture.

Since we’re talking car buying tips here, you still have to plug in all the numbers and look at them so you can be confident that you get the best complete car deal that is possible.

For instance, let’s say in lieu of signing with a $3,000 rebate offer, you go with the zero percent financing.

Keep in mind with this scenario, by not using the $3,000 to put down on the car, you will be paying that $3,000 additional on the selling price.

One of the unexpected outcomes here is that even though the financing rate is 0%, you’re still financing $3,000 more that you would have.

This means that if you opt to pay off your loan ahead of time, you’ll get a zero percent back in your wallet against your early payoff since there is no interest charge to be saved.

Another angle to take under advisement is that since you’ll be getting into your new car at $3,000 more than if you would have taken the cash rebate, you are in all actuality in your new car $3,000 more inverted against the market value.

So having a leaner balance against the market value of the car not only assists you to stay more right side up in your car versus depreciation, but it also helps protect you against something really bad where your car is totaled or even stolen.

You should also bear in mind that 0% financing comes from the car companies corporate lending offices (Ford, GMC, Toyota, etc) and not the regular banks themselves.

This, however, isn’t to say that a car dealer cannot still extend to you a 0% financing deal.

How do they do that?

If there is enough front end profit in the agreed price and the buyer has clean enough credit, the car dealer can appropriate a portion of the profit to the local bank to buy down the interest rate in order to make the deal look really attractive, yet still make a profit.

It’s a bit confusing, but let’s say a dealer can get a customer financed with a local lending institution at an interest rate that would result in finance charges of our $3,000 over the course of the loan.

If you’ve not been able to determine any zero percent financing from any manufacturers, and still the dealer is touting that they can score you one, then you need to be mindful and make certain you know all the factors involved.

If a dealer is already spending the $3,000 in order to make the deal inviting with a 0% financing rate, they are not going to be as willing to negotiate the price and there may a chance that they’ve even bumped the price up in order to increase the potential profit to begin with.If a dealer already has $3,000 more in expenses in the cost of the car by giving this to the local lending institution to pay off the interest charges in order to make a deal desirable, be advised that they probably won’t be willing to negotiate the price of the car and they may have, in fact, increased the selling price and potential profit just to be able to offer the zero percent.

Yes… 0% is an eye catcher for sure. But remember these car buying tips, it can sometimes be a bit of smoke and mirrors instead of an actual prudent financial decision for you.



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