Who wouldn’t want to finance a car at 0% interest? It has the potential to save you a lot of money over the life of the loan, right?
That’s what auto dealerships count on. It’s one of the best ways they have to get you into a new car, according to a J.D. Power Dealer Finance Study.
“Zero percent financing can be enticing, but not every offer is a good one,” says John Barton, Senior Vice President of Lending for SchoolsFirst Federal Credit Union. “That’s why shopping for the right loan is just as important as shopping for the right car.”
The Financing Game
If you finance a car through an auto manufacturer’s financing arm, the 0% loan may be a good deal since since it’s usually not built into the price of the car. But if the dealer is using an outside financial institution for its loans, the price of the car could be much higher. Why? Because the dealer has to pay the lender for the loan, and that cost is passed on to you.
Incentives and Cash Rebates
Incentives and cash rebates can save you a lot of money too, but typically they can’t be combined with a 0% offer. That’s why a low-interest loan like the credit union offers, combined with these incentives, may be a better deal than a 0% loan.
Know the Score
You must also have excellent credit to qualify for a 0% interest loan. If your credit score isn’t high enough, the dealer will offer you other loan terms, but you’re better off going with your credit union for more competitive rates, special incentives and preapproval deals. Preapproved financing is like having cash in hand. This gives you the power to negotiate like a cash buyer to get the best price possible on your vehicle.
Unlike conventional loans, you may be faced with a shorter-term loan, which means higher monthly payments. Can you afford them?
The dealer decides which vehicles qualify for the 0% offer, and may not include the car and all the options you want. Keep in mind: sometimes a good used vehicle is better than buying new. If you can find the make and model you like, with all the features you desire, you will likely pay thousands less for the car.
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Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or BALANCE counselor who can help tailor a solution for you.
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