We hear ads about 0% financing from auto dealers all the time, do you save big in the long run? Well, the answer is both a yes and no. Here is why:
How Is 0% Financing Possible?
If you are given a loan at 0% interest, this means you're borrowing money from a financer but paying no fee for the privilege of doing so. In this case, you are usually financing through the auto dealer and not a separate financial institution. Normally dealers have very strict requirements for this type of lending offer. So, buyers are required to have the highest-tier credit and are also required to take a loan term of only 2-3 years. Most buyers can’t meet this type of criteria. However, even if a buyer does qualify, there is still one more key point to consider before taking this offer. If the dealer isn’t making money (interest) on the financing, they will need to ensure that they do on the sale price of the car. So, they will likely inflate the price of the vehicle to offset the cost of lost revenue on the 0% interest rate. So, for example, if a member were paying cash or borrowing from an outside lender, like Century Federal, the dealer might incent them to purchase the car by offering a cash discount/rebate on the purchase price. HOWEVER, this offer would likely not be available to someone opting for 0% dealership financing.
So How Can You Get the Best Deal?
Get pre-approved for an auto loan with your preferred financial institution before heading out to an auto dealership. This puts you in control of the car buying process. You will know what you can spend, the best interest rate for which you qualify, and how much your monthly payment will be. With all this information in hand, when you approach auto dealerships, you can compare how much you will end up paying for the car with the deal they are offering, keeping in mind the accruing interest for the loan amount being offered. This way you can negotiate to get the best deal for the price of the car. Happy auto shopping!