You probably see it in car commercials all the time:
Take Advantage NOW of 0% Financing!
And you’ve always wondered how they can do that, or if it’s a good deal for you. Well today’s your lucky day! We’re going to break it down for you. There actually are some catches, like…
While the “0% financing” language gets all the attention, what you might not notice is the bit that says “for qualified buyers.” If you’re looking for a car loan with bad credit, the 0% financing offer might not be available to you. In fact, those offers are generally available only to people with excellent credit, so if yours is pretty good, you still might not qualify.
More small print. Often that low financing rate is only for shorter-term car loans, like 36 months. With new car purchases averaging $29,000, even at 0% interest your car payment would be just over $800 per month (assuming you don’t have a down payment). That might be a little hard to swallow for some people.
By contrast, if you got a car loan for that same $29,000 at 4.5% for 60 months (a more typical length for new car loans), your monthly payment would drop to about $540. Of course, you would end up paying more in interest over the life of the loan, but monthly affordability is important for a lot of people.
It might come as no surprise that manufacturers might price cars that are eligible for 0% financing a higher to make up for the loss. A car loan with no interest is making no money for the manufacturer – and they’re the ones doing the financing.
Can you overcome this? You sure can. The simple method is to go into the dealership negotiating the price as someone who has their own financing. Once you have settled on a price, then inquire about 0%.
This is probably also not surprising but because they are manufacturer incentives, these financing deals are available for new car purchases only. Everyone wants a new car but sometimes the economics of it just don’t make sense. Sure, new cars have all the greatest bells and whistles, but they’re priced that way too. A good used car often has most of the same features but has already taken the depreciation and, priced thousands of dollars less, can often provide more value for your dollar.