In this area, I’m starting to see truck commercials advertising 0% financing for six years.
I’m sure this promotion is designed for people who want to buy a car, but hate the thought of paying 7% interest on a car loan for 72 months. The thought of 0% interest for the life of the loan probably sounds appealing. Nevermind the fact that you’d probably be in debt for six years.
I can’t confirm my theory (well I can, but that would involve me going to a car dealership and acting like I wanted to buy a car), but I think this 0% financing deal isn’t a deal at all. No real research other than seeing these commercials has gone into this post, so I acknowledge I could be totally wrong. But:
For starters, the financing is subject to credit approval–likely, you need to have excellent credit to qualify. That means that for most people, the 0% offer is just a gimmick to get you into the dealership.
In each of these 0% financing commercials, they don’t tell you the price of a vehicle or even the monthly payments.
As a result, the overall price you could be paying might be a lot more than if you financed it yourself.
For all we know, when you go to negotiate the final sale price of the car and the salesman knows you want the 0% financing, the final sale price you get will probably be higher than the guy who walks in and pays cash.
So they don’t lose money, my guess is that these prices are inflated. Instead of paying 7% apr on a car loan, the price of the 0% apr car is probably adjusted up by 7 percent (or more!).
Because really, a car dealership is not going to set itself up to lose money. No ma’am. They’re making money with every car sold, including that 0% financed car.
If you have to take out a loan to get a car but hate debt, you’re probably better off negotiating the lowest overall price first, then discussing financing options after you have that final price established. Then, finance it with the bank that offers you the best rate or heck, pay cash.
If you’re paying 7% apr to a bank but can pay the car off in 3 years instead of 6, you’ll probably come out ahead than if you got a 0% interest loan with no incentive to pay it off early.
Here’s an article from a credit union (clearly, they’d prefer you finance with them than at the dealership) that explains more of why 0% apr isn’t necessarily a good thing.
Can anyone confirm my theory? I hate to post something with such minimal research, but I really can’t bring myself to go to a car dealership.