Ever been enticed by a zero percent auto loan commercial? If you have, then those ads are doing their job. Automakers have those offers out there specifically to catch your eye. Someone is actually going to lend money for free you ask? Yes, with a zero percent interest loan, 100 percent of every car payment you make is going towards paying off your new vehicle. It may seem too good to be true. How can that possibly be? Well, because it’s a great way for an automaker to get you in the door and have a good chance of selling a car. #WinWin
Automakers sometimes offer zero percent financing to help move a particular vehicle or model year faster. They may want or need to increase the sales of slower-selling cars or help clear out last year’s inventory to make room for newer models. The zero percent loan offer is not always the best deal on that new vehicle though. There may be a cash back offer in play as well. When considering a zero percent financing offer, you need to do the math to determine which offer actually saves you the most. Compare the cash back, any other type of dealer offer and the zero percent financing. Be sure to figure the loan term into the equation. If you plan on paying off the vehicle in only a few years, a cash rebate may actually be the better deal.
What’s the downside of a zero percent auto loan?
Zero percent auto loan financing may be difficult to qualify for. Those offers are usually reserved for buyers with an excellent credit rating and a long credit history. A car shopper may see the zero percent rate advertised and be attracted by the deal only to find they don’t qualify. They may then be offered a higher rate loan. When an automaker is advertising that zero percent loan, they aren’t going to advertise the credit score you need to get it. Their goal is to get you into the showroom to test-drive that vehicle after all.
Also, a dealer may be less apt to bargain if you’re accepting a zero percent loan offer. The asking price of the vehicle may be the final offer. Basically, that’s your deal and any negotiations or other incentives or rebates as mentioned above may not apply. Remember, the dealer is still making money on the sale of the vehicle and any add-ons you agree to. That’s their goal – selling a vehicle. They’re counting on that zero percent financing offer as too good for some car shoppers to pass up.
Put your glasses on and read the fine print
When you see a zero percent car loan offer, be sure to check the fine print so you’re fully aware of any catches. The more you know before you go into the dealership, the better. The vehicles that pertain to the offer may be out of your price range. The terms may be very short making your monthly payments too high for your budget. You may be required to buy an extended warranty or gap insurance. All of these things may simply make what looks like a good deal on the outside, a bad deal for you overall. If you do find a vehicle that works for you and are eligible for that zero percent loan, be sure to ask the dealer about any fees that apply. The fees on this type of offer may be higher, such as a hidden application fee. Before you sign anything, be sure that it’s actually a good offer. It all comes down to the math. Do your homework and bring your calculator with you. If you find it’s not such a good deal, simply walk away.
Get pre-approved for an auto loan
Even if you’re heading into a dealership to take advantage of a zero percent car loan offer, you should still get pre-approval for an auto loan at your credit union first. Having that pre-approval will give you more bargaining power when car shopping. It also gives you a back up in case you find you’re not eligible for a zero percent financing offer. If the dealer comes back at you with a higher interest loan offer, you’ll know you’ve already been pre-approved for a low-interest car loan at your credit union. It’s important to be sure you are getting the best interest rate available. Then you will have another car loan interest rate to figure into your equation when comparing various incentives. Click to learn more about Choice One Community Credit Union car loans and see interest rates. You can also easily apply for a car loan online.
Although you may be getting a zero percent loan, it’s still important to put some money down and don’t take the loan out for too long a term. The value of a vehicle diminishes quickly, so you want to make sure there’s still some value in it when the loan is paid off.
With interest rates rising, we are seeing less and less zero percent auto loan deals. If you have your heart set on one, and you have a particular vehicle or automaker in mind, start with a check of their website. You may find other incentives, that when combined with a low-interest auto loan from your credit union, work perfectly for your budget.
If you’re in the market for a new vehicle, read our blog article on getting the best deal when searching for that new car.