If it sounds too good to be true, it probably is. It seems like every car dealer is offering 0% financing. But just like any offer that sounds too good to be true, this one is no exception! As a member-owned financial institution, our credit union is dedicated to educating our members and ensuring your financial well-being. So here are some things you should know about 0% financing:
- You usually have to choose between the dealer rebate and 0% financing. This can be a substantial decision, as a typical rebate is around $1,500 and might be better used as your down payment or to pay off other, higher interest loans. You might find it more beneficial to pay a traditional interest rate and take the rebate.
- Zero percent financing is not available to everyone. Generally, only people with perfect credit qualify for 0% financing. If you have less-than-perfect credit, you still may get a great rate of 2.9% or 3.9%. However, you should evaluate the entire offer and consider what you will lose by paying an interest rate higher than 0%.
- Zero percent financing is usually offered with very short repayment terms. Some of the repayment terms can be as short as 12 months, which creates an incredibly huge monthly payment that you may not be able to afford. The longer the repayment term, the smaller the monthly payment. The credit union offers repayment terms up to 72 months, which can reduce a monthly payment from $2,150 to $364 (based on a $25,000 car loan at a rate of 5.9%).
- You may be required to make a large down payment. Some dealers require a large down payment before offering 0% financing. If you don't have cash available to make a down payment, you may not qualify. The credit union offers up to 100% financing, including tax and license.
- You may have to choose between the exact car you want and 0% financing. Special financing is usually offered for certain models with certain features. 0% financing is a way for car dealers to move inventory that isn't selling well, so you may not be able to get both your dream car and 0% financing.
- The price of the car may not be negotiable. The dealer may be less flexible on the actual price of your new car, because the manufacturer is losing money on the 0% financing. If you are pre-qualified for a loan elsewhere, you have the power to negotiate like a cash buyer and get a better price on the actual car.
- You may not be offered much for your trade-in. Used car prices are unusually low right now because of the recession. And of course, you almost always get less for a trade-in than you would if you sell your old car yourself. With 0% financing, you may find that the dealer is even less generous with the amount offered for your trade-in.
- A car is a major purchase, and even with 0% financing it is still an expensive one. Be sure to carefully consider all the costs and variables involved in your transaction, and always feel free to walk away and think about an offer. Don't let high-pressure tactics force you into making a purchase-you can always buy your car later or somewhere else!