Automotive Loans: Is Zero Percent Financing Really Possible?

by Amy Lillard

(2/5/2013) You may have seen the ads on TV or online promising the deal that sounds too good to be true: "Zero percent financing" on new car purchases. What’s the truth behind these ads, and are zero- or very-low-interest car loans really a possibility?

When it comes to new cars, some manufacturers offer no- or low-interest car loans to move certain models, particularly if they have a surplus of inventory. These loans may be offered during certain time periods to spur sales and drive the overall company revenue into the black.

However, watch those commercials again. Each ad touting the deal mentions it’s available for "qualified customers" only. That means only those buyers with the best credit can hope to qualify for this special, translating to only about 10 percent of consumers.

And if you do qualify? Turns out these zero percent offers may not be the best choice:

• Tougher terms. Many zero percent or low-interest loans offered by manufacturers and dealers require shorter finance terms. While a normal loan might be spread over 3-4 years, these loans are usually less than three years. This means a higher monthly payment. Additionally, many zero percent offers may require a larger down payment at purchase, which can be tough for many buyers.

• Less opportunity to negotiate. If you qualify for a no- or low-interest loan, dealers will not be making any money off the loan. That makes them much less likely to concede on price. You may end up paying more for the car, and the benefits of low interest may be negated by higher payments.

• No rebates. Zero percent offers cannot be combined with cash-back rebates. And often, these cash-back rebates can lower the amount of a loan significantly, resulting in monthly payments that would be lower than those in a zero percent financing deal.

• Blowing your budget. Low interest loan offers are designed to get customers to the dealership, and to sell more cars. They also work to convince many buyers that they can afford more expensive cars since they won’t be paying as much or any interest, which can result in much higher payments and a less-than-ideal deal.

Before hitting the dealership, do your due diligence. Know your credit score, and if you might be a good candidate for zero percent financing. Determine how much car you can really afford, and stick to that price. Calculate if lower interest or a rebate is a better option for you. In short — conduct as much research as possible, and you’ll be in a stronger position to find your new car.

For Additional Reading:

How Car Buyers Can Land the Elusive 0% APR: http://www.smartmoney.com/spend/family-money/how-car-buyers-can-land-the-elusive-0-apr-23436/

Why Zero Percent Will Still Cost You Money:
http://autos.aol.com/article/zero-percent-financing/

Other related articles:

Automotive Loans: Determining a Down Payment

Automotive Loans: The Truth About "Add-Ons"

Automotive Loans: Shopping Online

Automotive Loans: What to Know About Interest Rates

Automotive Loans: Negotiating a Loan with a Dealer

Automotive Loans: Types of Financing

Automotive Loans: Buying Vs Leasing

Automotive Loans: Applying for a Car Loan

A frequent contributor to ERATE® since 2006, Amy Lillard is a freelance writer specializing in turning complex information into useful tips and tricks for readers. For questions or topic suggestions, contact Amy at [email protected].

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