Is 0% financing always a good deal?
When you're shopping for a car that you'll be financing with a car loan, the prospect of receiving zero percent financing is often too good to pass up. Or is it? It's important to evaluate all of the factors that affect the total price you end up paying, so you always end up with the best possible deal and the most favorable terms on your car loan.
In many cases, 0% financing is a hook to bring in more potential customers and car buyers, without actually offering them the best deal. When you agree to 0% financing on your car loan you're typically exchanging that interest rate for other potential favorable terms, such as large manufacturer rebates and incentives, which are intended to decrease the total price.
Consumers can actually save more by forgoing the 0% auto loan from the dealer, and getting private financing that enables them to capitalize on those rebates. Ultimately though, what will make it worthwhile for you will be the interest rate you get on your car loan, and the size of the rebate available.
The easiest way to figure this out is to do some basic math. The numbers may be different for whatever new or used car loans you're considering, however, you can plug them into the equation to obtain the direct comparison you need.
If you get 0% APR* dealer financing on an auto loan on a $25,000 car, you're financing that total figure. If you make 60 monthly payments, your monthly payment would be approximately $416.68.
On the other hand, let's say you obtain a favorable 1.99% APR* interest rate on your car loan through your local Credit Union. Now, you're able to capitalize on that manufacturer rebate.
For the sake of example, let's say the rebate is $4,000, which brings down the total you're financing to $21,000. Over the same loan period, you're now paying just $367.99 per month, including interest. That provides you with a direct month-to-month savings of about $49, which translates to nearly $2,940 over the life of that loan.
Sometimes, things that appear too good to be true are indeed just that. Before you jump the gun and sign up for 0% dealer financing, speak with us here at your local Credit Union to see what types of interest rates we are offering and what you would qualify for. You can literally save thousands of dollars on your auto loan by forgoing the nifty 0% financing hook.