The ads are everywhere “0% financing for 60 months”, “No interest for 4 years”. As enticing as that might sound, it is not always the best deal if you are going to finance your new car purchase. Here are three things to watch out when deciding to take the 0% interest route.
Buying Too Much Car
When presented with the 0% financing offer, some people think that it is a shame not to get the most car that they can get. Even though there is not interest, just remember that there ARE payments. And the more expensive the car (interest or not), the higher the payment.
Bait and Switch
You have picked out your car, negotiated the price that you want and are ready to step into the Finance office. Everything is going according to plan until the Finance Manager tells you that because of your credit, you do not qualify for the 0% financing. Now what?
You have invested your time and emotions into the car and you hate to walk away. You may as well listen to what the Finance Manager has to say. He tells that while you do not qualify for the 0% interest, you can get a great rate from the bank that they use. And, good news, it would only raise your monthly payment by $20 versus the no interest financing. Sounds good. You say, “I will just go out to eat one less time per month, no problem.” But there is problem: if you multiply $20 X 60 months, the price of your car has just gone up by $1,200!
At this point, you can do one of three things: 1) get up and walk away from the deal; 2) relent and buy the car at the higher interest rate or 3) leave and try to find your own financing with better terms and come back and buy your car with those funds.
The Small Print Concerning Rebates
Most of the time, when you take advantage of the 0% financing from the dealership, you will forfeit any rebates the might be available for the car. The small print in the advertising will usually say something like “0% financing in lieu of rebates. This is where you will have to find a good online calculator and do some math. Here is an example of a case where taking the rebate instead of the 0% will actually save you money.
Example: Assume that you are buying a car for $15,000 and you can either have a $3,000 rebate or 0% financing for 60 months.
0% Financing – monthly payments = $250 ($15,000 / 60)
6% financing with $3,000 rebate (again, use an online calculator for your specific situation) – monthly payment = $231.99
Using the rebates instead of the 0% financing will save you $18.01 per month or $1,080.60 over the 60 months of the loan.
The lesson here – 0% financing will not always be the best deal.