Not So Zero Percent Financing
Since the not too distant past, zero percent car financing has becoming a very popular financing option offered up by the various car manufacturers.
Zero Percent financing on your new car may sound all well and good, and many times it is...
but it's not the end all be all.
You still must plug all the numbers in and run them in order to make sure that you get the best overall car deal that is possible.
As an example instead of taking a $3,000 rebate you opt for the zero percent financing.
In this scenario, you must keep in mind that by opting for the zero percent financing you are going to pay $3,000 more for the car.
One of the unforeseen consequences here is that even though the financing rate is zero percent, you're still financing $3,000 more that you would have.
This means that if you happen to want to pay off your loan early, you'll get a zero percent back in your pocket against your early payoff since there is no interest to be saved.
Also, by not reducing your bottom line by applying the $3,000 rebate against the deal you negotiated, you are essentially in the car $3,000 dollars higher against the market value of a quickly depreciating asset.
So having a lower balance against the market value of the car not only helps you stay more right side up in your car against depreciation, but it also helps protect you against something catastrophic where your car is totaled or even stolen.
You should also be mindful that zero percent financing comes from the manufacturers corporate lending offices (Ford, GMC, Toyota, etc) and not the banks themselves.
However, this does not mean that a dealer cannot still offer you zero percent financing on their own.
How do they do that? For good credit customers the dealers can take some of the profit from the car that they are offering and simply give it to a lending institution as an up front payment for what otherwise would be the interest on a loan.
It's a bit confusing, but lets say a dealer can get a customer financed with a traditional bank at an interest rate that would produce interest payments of our $3,000 over the course of the loan.
So, the dealer simply buys that interest rate down to zero percent by giving the bank the $3,000 dollars up front.
This is where you have to be a bit careful when you see a dealer offering a zero percent interest rate and you've not been able to determine that this great rate is being passed down from the manufacturer themselves.
If the dealer is already into the for $3,000 in order to entice you with a zero percent interest rate, they are not going to be as willing to negotiate if at all, and there is a good chance they raised the retail price of the car to begin with in order to buy down the interest rate from the bank.
So even though zero percent financing may get your attention and sound like a great deal...
it can sometimes be a bit of smoke and mirrors and not necessarily be the best car deal you can invest in...
so always run the numbers.
Zero Percent financing on your new car may sound all well and good, and many times it is...
but it's not the end all be all.
You still must plug all the numbers in and run them in order to make sure that you get the best overall car deal that is possible.
As an example instead of taking a $3,000 rebate you opt for the zero percent financing.
In this scenario, you must keep in mind that by opting for the zero percent financing you are going to pay $3,000 more for the car.
One of the unforeseen consequences here is that even though the financing rate is zero percent, you're still financing $3,000 more that you would have.
This means that if you happen to want to pay off your loan early, you'll get a zero percent back in your pocket against your early payoff since there is no interest to be saved.
Also, by not reducing your bottom line by applying the $3,000 rebate against the deal you negotiated, you are essentially in the car $3,000 dollars higher against the market value of a quickly depreciating asset.
So having a lower balance against the market value of the car not only helps you stay more right side up in your car against depreciation, but it also helps protect you against something catastrophic where your car is totaled or even stolen.
You should also be mindful that zero percent financing comes from the manufacturers corporate lending offices (Ford, GMC, Toyota, etc) and not the banks themselves.
However, this does not mean that a dealer cannot still offer you zero percent financing on their own.
How do they do that? For good credit customers the dealers can take some of the profit from the car that they are offering and simply give it to a lending institution as an up front payment for what otherwise would be the interest on a loan.
It's a bit confusing, but lets say a dealer can get a customer financed with a traditional bank at an interest rate that would produce interest payments of our $3,000 over the course of the loan.
So, the dealer simply buys that interest rate down to zero percent by giving the bank the $3,000 dollars up front.
This is where you have to be a bit careful when you see a dealer offering a zero percent interest rate and you've not been able to determine that this great rate is being passed down from the manufacturer themselves.
If the dealer is already into the for $3,000 in order to entice you with a zero percent interest rate, they are not going to be as willing to negotiate if at all, and there is a good chance they raised the retail price of the car to begin with in order to buy down the interest rate from the bank.
So even though zero percent financing may get your attention and sound like a great deal...
it can sometimes be a bit of smoke and mirrors and not necessarily be the best car deal you can invest in...
so always run the numbers.
Source...