Zero Percent Financing
How To Take Advantage of 0% Financing
Zero Percent Financing
When you hear or see ads touting 0% financing, your first reaction
may be one of skepticism. The obvious question becomes: How can any
finance company offer a car loan with absolutely no interest?
Surprisingly, 0% financing not only really exists, but it is
currently one of the most popular incentives in the automotive
industry. To date, this type of incentive is exclusively offered by
the finance companies of major automotive manufacturers.
The formula is simple. Just as they offer vehicles with cash
rebates, car companies subsidize the finance arm of their
corporations, virtually "pre-paying" the loan interest on specific
models. Each company follows the individual formula that works best
for them depending on the cost of the vehicle and the loan term.
The automotive industry on the whole has been on a downward sloping
sales cycle since before the events of 9/11. Since that time, 0%
financing has been offered on more brands than ever.
Has 0% financing worked? In large part, yes.
It is considered to be one of the most successful motivators to get
car-buyers into dealerships according to the J.D. Power Dealer
Finance Study. The other side of the coin is that many of the
responding car-buyers do not end up with the 0% loan — for several
reasons we'll explore.
So when it comes to 0% financing, what is fact and what is fiction?
1. 0% financing usually requires a shorter-term loan, which
can require higher payments.
This is, for the most part, true. The most common 0% finance deals
extend to a maximum of 3 years. Since many conventional auto loans
extend to 5 years, many buyers opt to keep their payment lower.
There are, however, rare exceptions to this rule where 0% financing
is offered in a 60-month term.
2. 0% financing requires "A" credit to qualify.
True now, but there are some finance programs that are moving into
the next level of credit ratings to go after an expanded audience
with less than perfect credit scores.
3. 0% financing is only available on a limited number of
models in dealer stock — not on special orders or option packages.
Yes, most 0% deals apply only to the vehicles on the dealer lot and
they usually do not include special option packages or premium
models.
4. 0% financing is usually offered in an either/or
situation with a cash rebate and you must choose between the two.
While this is becoming less common, most of the American
manufacturers usually follow this formula.
5. If you qualify for 0% financing, negotiating a lower
price on the vehicle may be more challenging.
Thankfully, this is not true in all cases. Although this may happen,
a reputable dealership will first negotiate the best possible deal
before applying the 0% finance to your sale. We do recommend you do
your homework before buying.
6. Even if you do not qualify for 0% financing, excellent
interest rates are available.
A direct lender such as E-Loan or your bank or credit union, can in
many cases get you a lower interest rate than a dealer might offer.
For this reason, we recommend shopping loans online to make the best
possible choice before you go to the dealership.
With all these facts in mind, many people still seek out 0%
financing. And although this trend has been around for a couple of
years, most industry experts believe it can't last forever.
With the advent of lower interest rates and flexible terms,
today's car-buyers are finding creative financing at an all-time
high. And with the economic challenges facing us today, these
programs are a welcome and much-needed benefit.
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