Is 0% financing a good deal?
Paying no interest sounds inviting, but not every buyer qualifies.
If you've watched much television lately, you've likely seen back-to-back car commercials touting 0% financing. As carmakers compete to sell vehicles, nearly all are resorting to "no-cost" financing.
Zero percent financing offers often draw consumers to showrooms, but the results aren't always good for buyers.
"On the surface, 0% financing can sound like a no-brainer," said Ethan Ewing, president of Bills.com, a financial advice Web site. "However, consumers must understand that 0% financing is intended to generate foot traffic for dealers as a bait-and-switch tactic, and that it is sometimes not as rewarding as alternative incentive offers."
In many cases, 0% financing can present tremendous opportunities to potential car buyers. However, consumers should first do their homework to ensure that it is actually the bargain it is marketed as by dealers and car companies.
Some things to consider:
- Remember that all dealer incentives are designed to generate car sales. The ultimate goal is to bring consumers into the showroom.
- Normally, only customers with the best credit will qualify for 0% financing. If you are purchasing because of the promotion, check your credit score ahead of time so you will know whether to even step foot in the showroom.
- Most 0% financing offers come with a relatively short payback term, which can make for higher overall payments. For families on a monthly budget, it might make more sense to avoid the promotion and opt for a longer-term payback so monthly payments are lower.
- Most 0% financing offers are available only on a limited number and type of models. Car buyers should research which automobiles are being offered as part of the promotion before visiting the showroom.
- Be wary of automobile prices that are elevated to compensate for low-interest-rate offers. Negotiate the price of the car independently from the loan terms. By packaging your new car price, any trade-in and your loan terms as one deal, you stand to lose money.
- Finally, explore competing promotions such as cash-back offers. Sometimes, a cash-back award might be a better deal in the long run.
For example, the monthly payment on a $28,000 vehicle at 0% interest over 48 months is $583.33. This compares with a $572.52 monthly payment for the same vehicle with a $3,500 cash-back offer and a 6% interest rate over 48 months (not including tax and title fees). Do your research carefully and compare all offers.
"Car buyers should arrive at the dealership as well-armed as possible, with an auto in mind, a set price range, and some idea of your creditworthiness," Ewing said. "Without this information you are at a great disadvantage."
Related reading at ConsumerAffairs.com:
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
Nearly half of family caregivers spend more than $5,000 a year, plus caregiving affects their jobs and retirement plans.
- America's most counterfeited products
- Driver survey: Men irked by phone talkers, women by lane cutters
- 5 reasons to take the company buyout (and 5 not to)
- Tired of Fed-watching, saver? Check out these banks instead
- New software targets credit card thieves at gas pumps
- Thinking of holiday shopping? Do a reality check first
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'