Zero Percent Financing: Too good to be true?

You’ve seen the ads. Zero percent financing, 2.9 percent financing. The automobile manufacturers’ rates seem great. What could be wrong with them? Plenty, if you take a look at the fine print.

  • These low rates are often available only to those with the best credit records. One small credit blemish and the rate goes up.
  • Many of the companies are offering these low rates for loans with shorter terms (36 months or less). That increases the amount of your monthly car payments.
  • The rates are sometimes offered only on “selected” models, which are usually not the most popular models.

Consider the total cost of the loan too. Will you be charged an application fee? Is there a pre-payment penalty? Would you be required to pay front-loaded interest, that is, pay more of the interest earlier in the loan? You may carry a larger principal balance longer, meaning at some point the value of the car could be less than the balance of the loan.

How to Find the Best Deal

Your best deal could come from skipping the low dealer rate, taking the rebate the dealer is offering, and financing your vehicle through your credit union. Why?

  • You start off with a lower loan amount if you take the rebate, saving you money in finance costs.
  • You could get lower monthly payments with your credit union, because low auto loan rates are available for loans with longer terms as well as short ones.
  • You may save money on the total cost of the loan, because credit unions don’t charge application fees or pre-payment penalties, and most charge simple interest, meaning you pay down your principal balance at a faster rate.

At your credit union, you can choose any make or model. You can choose your terms. And you can save money. Check with your credit union before you sign any financing agreement offered to you by a dealership.

Did You Know … ?

  • That only 9% of the people who apply for “0%” financing qualify for it?
  • That getting “0%” financing may depend on your willingness to pay the full sticker price?
  • That “0%” financing is usually available on slow-selling models only?
  • That, as a result of having to pay the full sticker price, the taxes on your car will probably be higher if you get “0%” financing?
  • That getting “0%” financing will often prevent you from getting a rebate you would otherwise have been eligible to receive?
  • That you’re usually better off taking the rebate and getting a loan from the credit union?