zero percent finance car
Does 0% Financing Save You Money on a Car?
- In the first field, enter in the cost of the car without a rebate.
- In the second field, enter the cost of the car after the rebate.
- In the third field, enter the number of years for the loan's term.
- In the fourth field, enter the reduced financing rate offered if you decline the rebate. This should be a number for the annual percentage rate.
- In the fifth field, enter an alternate financing rate available if you accept the rebate. This should be a number for the annual percentage rate.
- Click the "Compute9quot; button and you will see: the monthly payment for financing the entire cost at the reduced rate, the monthly payment for financing the cost after the rebate at the alternate rate, and the difference between the two options. If the difference is negative you should take the rebate and use the alternate financing method.
The Zero-Percent Financing Scam
Automobile companies have discovered that 0% financing promotions are one of their most effective sales tools. Print ads and television commercials abound with offers of “0% APR” on new models. The idea is to attract buyers for new cars by making it appear that compared to used cars, they will save money on financing. However, almost all 0% financing offers provide multiple options for the consumer. The ads usually read something like “0% financing for three years or a specified amount of cash back.” The amount of cash back depends on the model, with expensive models receiving larger rebates. Further inquiries reveal that if you desire a longer loan, that option is also available for a reduced interest rate of 1% or 2%. Which option is best for you as an automobile buyer? Should you (a) take the cash back, (b) take the 0% offer, or (c) take the longer-term loan at a reduced interest rate.
The answer of course is—it depends. But before we analyze the situation to determine what your choice depends on, let us immediately dispense with the 0% financing myth. If you are considering a car with a $15,000 price tag and are told that you will get $2,000 back if you pay cash, that car costs $13,000. If you are told that the car cost $15,000 and instead of the cash back they will finance it at 0% for three years, the car still costs $13,000 and you are being asked to pay a $2000 financing charge up front.
Car dealerships go through an elaborate charade to make the car appear to cost $15,000, but the bottom line is once all the money has changed hands, the net cost to you is $13,000. Before agreeing to a 0% financing deal shop around for alternate financing. Use the calculator on the left to compare monthly payments. Suppose you can finance the $13,000 cash price at 7% with a loan from your bank. The calculator will compare the monthly payments resulting from the reduced financing charge of 0% for $15,000 with the payments resulting from the alternate finance charge of 7% for the $13,000. In this example, if the loan is 3 years the payments per month on the 7% loan are $401 compared to $416 for the 0% loan. It costs $15 extra per month over three years for the 0% financing.
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.
Zero Percent with 0 Interest Car Loans
Date: February 20, 2012
Lots of Advertisement and Campaigns been run by Car Dealers to Car Manufacturers from time to time advertising that they can provide Finance at 0 % or No Interest Car Loans. Wondered, when Banks are taking deposits at 10%, then how is it possible to lend Car Loan at 0% !!
No Bank or Financial Institution or Dealer is mad to spend money on advertisement that they want to incur losses by lending at Zero Percent. There is a gimmick involved in it. Heres the gimmick :-
Say, eg You Intend to buy which is priced at say Rs. 11 Lacs and wants to take Finance of Rs. 7 Lac for 36 months
Scenario is that the Rate of Interest of Bank is 11%, and there is discount on car worth Rs. 1,00,000 going on. Now, do understand - how is zero percent finance been calculated
Car Loans at Zero Percent Vs. 11% Scenario
In Actual Scenario, the EMI would be Rs. 22,918 for 36 months. Total Outflow for 36 months would be Rs. 8.25 Lac on loan of Rs. 7 Lac for 36 month @ 11%. Interest Outflow during entire tenor would be Rs. 1.25 Lac on stated loan amount which is payable to Bank.
Now in Changed Scenario wherein dealer is running campaign of 0% Scheme on Car Loan, the Loan here would again be at Rs. 7 Lac, but instead of passing upfront discount benefit on car to customer, the dealer will merge in this discount on car in the Finance Scheme. So, even though if you are taking Loan of Rs. 7 Lac, Bank is effectively making payment of Rs. 6 Lac to Dealer. Your EMI will turn out to be Rs. 19,644 . Interest will be shown on loan of Rs. 7 Lac at .66% , which is effectively at Zero Percent. Your Car Loan Statement of Bank will show in Loan of Rs. 7 Lac, Tenor 36 Months and Interest Rate at .66%. However, fact is that Bank is now calculating Interest on Rs. 6 Lac , due to 1 Lac discount been merged in Finance .
Now Which Scenario is Better
We suggest to always have Plan A, to take upfront discount rather than Plan B to have Zero percent scheme. Reason - Even, if you cant plough back this money in business or any other stream, even FD returns on 1 Lac amount would be at least Rs. 25,000 after TDS in 3 years. Hence, why to block this money in lower EMI unless, you are on heavy debt and only focusing to lower off your EMI.