The 0% Financing Scam and How to Avoid It
Consumers obviously love these deals because it results in a much lower car payment.
You normally have to choose between a cash-back rebate and the finance incentive. It's usually better to choose the cash-back rebate, but that's besides the point.
The goal of this article is to alert you to a financing scam that pretends to be 0% financing when it's really not.
0% financing is only offered through the manufacturer's finance division (such as Toyota Financial or Ford Credit).
Banks and other lenders cannot offer 0% financing because they would lose money. A manufacturer can do so because they can absorb the costs and still make a profit on the sale of the vehicle.
There are unscrupulous dealers who will advertise 0% financing on vehicles that don't actually have the incentive available.
How do they do it? Simple - they just raise the price of the vehicle to offset the cost of "buying down" the interest rate.
Let's say you qualify for a loan at 5% interest. In order to get the interest rate down to 0%, the dealer will need to prepay all of the interest cost directly to the lender. This may total anywhere from $2,000 to $4,000 on a typical loan.
Guess what? The dealer raises the price of the vehicle by that same amount and tells you "This is the price that qualifies you for 0% financing".
Many car buyers are simply happy with the "low" rate and agree to it.
This scam works best on vehicles that are heavily discounted, so when they add the cost of interest to the price of the car, you still end up paying close to or below MSRP - so it looks like you're not getting ripped off.
So how do you avoid this scam? It's easy - the interest rate on a 0% financing deal should never be contingent on the price of the vehicle. It simply does not matter what you pay for the car. If a dealer insists you only qualify if you pay a certain price, you're getting scammed.
Your best bet is to turn around and run out of that dealership as fast as you can.
My Recommendation for Car Shoppers
Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.
Zero Percent Auto Financing – Car Loan 0 Interest
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Car Financing With No Down Payment
Ways to Get 0 Percent Financing On a New Car for Fast and Easy
Numerous car manufacturers prop up the efforts of their dealerships to move new car list by advertising zero percent auto financing on new cars. Generally, lenders offer the finest credit provisos and interest rates to the loan aspirants with the highest credit scores typically somewhere in the array of 680 and 720 points.
What is zero percent financing?
0 financing on new cars denotes that you have no necessity to pay the interest on top of your principal sum every month on your car credit attributable to the low risk of your loan non-payment. The zero percent financing may be shared with a zero down fee, zero payments for a certain number of months or a discount offer. Car purchases need negotiation, investigation and the pledge to make monthly installments. You will probably use this car approximately daily to go to occupation or run tasks. You require a car for this, and the car dealership is familiar with this. Ads for zero percent financing from the automotive dealerships victimize those who require cars and are in search of a deal. Be cautious. This could be a transaction, but you are supposed to look at the total price of what you will be shelling out for your car.
Get your eligibility better by making your credit score stronger
· If necessary, inquire point-blank, to discover the point at which a poor credit score will dictate that you acquire less constructive credit conditions and interest rates.
· Exploit your probability to meet the criteria for 0 percent financing cars by acquiring a photocopy of your credit statement beforehand and making sure that your credit rating is in the range of 680 to 720 points as a minimum.
· Get your credit rating better by cleaning up any blunders and troubleshooting any setbacks on your credit statement.
· Deem returning to a specific dealer, manufacturer, or lender with whom you have bought and financed earlier cars, as this history may insert points into the computation of your credit rating.
Obtain zero percent funding when it is the finest deal
· Do the arithmetic yourself to evaluate the available savings if a dealership offers you an option between a cash discount and loans with no credit no down payment cars. By applying the total lump sum cash discount to your down payment, you may put aside in excess of you would with no-interest funding.
· Ensure that the zero percent financing deal that you discuss with for a new car covers the whole life of the credit, not just the primary year.
· Obtain it in writing. You may bargain the basics of your car loan with a salesperson, but the deal is not finalized pending you have a concluding financing agreement from the finance office of the dealer. Several car buyers find it helpful to speak to the finance person of the dealer at the commencement rather than the end of the course.
· Go through and obey with the print on any auto financing deal. Be conscious of traps such as the likelihood that a single delayed payment could activate a higher, penalizing interest rate.
Zero-percent Car Financing – Fact Or Fiction?
What does zero percent financing really cost? Car dealers have been very successful with their zero percent financing campaigns – so successful that the concept has been repeated in other industries such as electronics, furniture sales and credit card companies.
According to CNW Research, only one-third of buyers who apply for zero percent auto financing actually qualify and only 10% of those deals actually close according to the National Automobile Dealers Association. CNW Research goes on to state that many zero percent qualifiers overpay for their cars, since they assume they’re getting the best deal available and they fail to negotiate price. Automotive manufacturers use their own financing companies to underwrite these zero percent loans, each of which have their own credit qualifications. Generally speaking an applicant must have close to perfect credit to qualify for zero percent financing.
If you have been one of the fortunate ones that didn’t get lured in with the 0% financing offers only to get switched to a higher rate because of “blemishes” on your credit and the dealer is now offering you that “free” money, here are some drawbacks you should be aware of before signing that deal.
Shorter Loan Terms. Some dealers offer 60 month terms, but 36 months is average. This means your monthly payments will be much higher.
Limited Inventory. The zero percent offers are generally reserved for models that are suffering lower sales and is almost never offered on pre-owned inventory.
Cash Back. Have you every noticed the “or” clause in those zero percent advertising ads “0% or $10,000 cash back?” That $10,000 you lose by opting for the zero percent financing is the actual cost of borrowing. This often equates to an interest rate much higher than a traditional car loan.
Adding up the Numbers A recent search of the website of one of the Big 3 automakers shows an offer of zero-percent financing on a 2005 mid size sedan. This is how the numbers work out.