Is getting 0% financing a deal or do you feel like you’re leaving money on the table?
So, you’ve done your research. You have looked at all the models, crash tests for those models, and matched them with what consumer reports says. You know what kind of vehicle you want and by now you’re ready. You might also checked sites on how to buy a car. You should have looked at your credit from Equifax or one of the other three credit reporting agencies.
The Real Deal
Now it’s time to head into the dealership to get that deal. When you find a salesperson you like and sit down to look at the numbers the salesperson gives you a couple of options such as several thousand dollars in rebates and the heavily advertised zero percent. Which route will be the best way to go? To know for sure look at the full picture. First, have you come to a fair price on the vehicle? (Edmunds.comcan help with this part!) Second, is the offer for your trade in fair, if you’re trading? (KBB.comis closest to fair value.) And third, what is the alternative rate to the zero percent. (To get the average rates in your area go to Bankrate.com.) With zero percent taking away from real money, in the form of rebates in exchange for finance charges, that’s more funny money. The better choice is usually all the discounts. What is meat by funny money, is the interest charges are compounded daily against the daily balance. This allows you to pay extra each month towards the principle and not have the interest to be charged with that portion of the balance. Another benefit is that if you are like most people your trade cycle is between 33 and 42 months. That means if you take zero percent, you finance more, having a higher balance at the time you get ready to trade vehicles.
Can Zero Be a benefit?
One thing about math is that it’s always neutral. There is a breaking point to where zero percent usually helps you to pay less for the overall purchase. That point is about thirty thousand dollars to finance. You will be able to realize this benefit only if you pay out the term of the loan. Just like before if you plan on trading vehicles in about three years, you lose the benefit. Another way that zero percent financing can work, is if you have marginal credit. Having marginal credit will give you a higher conventional interest rate.
Anytime you are in the market for a new vehicle make sure you do your homework before you arrive at any dealership. The better equipped you are the better the deal you’ll get.