Zero percent financing means walking into a showroom, selecting a car, determining the price, signing the loan, and rolling out with a brand-new ride. Sounds easy. Sounds fun. You’d think most people would do it and fill their garages with new cars every other month. But is there a catch? Read on to find out!
What’s Zero Percent Financing?
Zero percent financing refers to a car loan offered by dealerships or manufacturers where the borrower pays no interest on the auto loan. Instead, the interest cost is built into the price of the vehicle. This can make the monthly payments lower than they would be with a traditional loan that includes interest charges.
Is Zero Percent Financing All Good?
Zero percent financing has restrictions. Those restrictions limit ninety percent of car buyers from zero percent financing. For example, drivers must have a high FICO score (approximately 750) and an excellent credit rating. They also need a steady income high enough to make the payments. Anyone who opts for this program must agree to the limited models the dealers offer, accept that they will not be eligible for rebates and must pay the price the dealer sets. For people with steady cash, zero percent financing lets them buy a new car without the extra interest payments. This protects them from losing a considerable amount of cash at one time.
The key to zero percent financing is looking at the car’s initial price. Dealers make money by making the buyer pay a premium. If you put down enough cash at one time or make high payments over several months, dealers are more likely to offer you better deals.
The Final Word on Zero Percent Financing
Remember that zero percent financing may be an option for you, and it’s worth considering. However, it’s crucial to read the fine print carefully and understand the consequences of late or missed payments. In most cases, a late payment will void the deal, and a missed payment will result in higher interest rates and retroactive finance charges.
Dealerships and financiers have learned from the 2008 economic downturn and will not offer a product that will result in a loss for them. Zero percent financing may sound appealing, but it’s primarily used as a marketing tool to bring customers into the dealership. It’s often the case that customers will not qualify for the program, but dealerships can still make a sale by offering alternative financing options.