If you’re considering purchasing a new auto, you have probably seen and thought about 0% financing. Before you sign on the dotted line, you should be aware of the drawbacks and the fine print details associated with 0% financing. Not understanding the facts could cost you money. Don’t allow a hasty decision to take dealer offered financing place a dark cloud over the joy of driving a new automobile. Most dealerships will allow you to sign a 30-day promissory note in order to obtain financing of your choice; dealerships cannot force you to take their financing.
1. Vehicle Cost – Since the dealer earns no profit from 0% financing, you could end up covering that loss in another area of the purchase. For instance, you may end up paying the full sticker price or you may have to purchase without the benefits of rebates that are offered, in order to qualify.
2. Not All Models Qualify – 0% financing is normally offered on vehicles that have a very low demand, these vehicles depreciate faster and have a lower resale value than higher-demand vehicles. Also, you could be forced to select from vehicles that the dealer has in stock, sacrificing color, options, or other special features you want.
3. Monthly Payment – Most 0% offers are for short time periods; 12, 24, or 36 months. As a result, your monthly payment could be higher than you would like. It is generally easier to pay smaller amounts over a longer time frame, even if the interest rate is slightly higher. With most credit unions you always have the option of making additional payments to accelerate your pay off, reducing your overall interest paid, without prepayment penalties.
4. Are You Eligible – Dealers often restrict 0% financing to those buyers with spotless credit records and may also require a large down payment. If you do not qualify, you could be bumped up to a much higher interest rate.
In general, it is important to carefully compare dealer offers with those of other lenders when it comes to finding the best financing. Annual percentage rate, length of loan, and vehicle cost will all affect the price you pay.
Remember to contact your Credit Union about financing options that are best for you.
The following chart illustrates the advantages of a Credit Union auto loan compared to a 0% dealer loan when the rebate is used as a down payment on the vehicle to reduce the amount financed. Savings is calculated on (Amount Financed – Rebate + Interest Paid).
