Nothing brings customers faster to Denver dealerships than the offer of zero-percent financing. The idea of paying no interest for a car loan is certainly appealing for car buyers in the area, as interest is what makes loans so expensive. Unfortunately, many people jump at the offer without knowing much about it. Does the customer really get away with financing without interest? If you are planning to buy a car, you should know the real deal before you take this option.
Where to get it
Ever wondered why there is no bank or credit union that will allow car buyers to borrow without interest? The zero-percent financing option is exclusively offered by financing arms of car makers, like Ford Motor Credit Company. Only the finance arms are in the position to offer such a deal because they are connected with the auto manufacturers themselves. What happens is that the manufacturer gives subsidy to its financing arm, paying the loan interest on certain models in advance.
Who can get it
Car buyers who qualify for zero-percent financing are those with excellent credit. While some finance programs do accommodate individuals with tarnished credit, these are the exception and not the rule. Dealerships can arrange for no-interest loans to those with stellar scores because the borrowers are less of a credit risk. Interest compensates risk, which is why bad credit borrowers are charged higher rates. Those with bad credit can still get financing, but not without interest.
What comes with it
The zero-percent financing option comes with a shorter loan term and limited vehicle selection. Unlike other auto loans, zero-percent financing demands a shorter repayment period. This means that if you qualify for this finance deal, you will not pay interest but you will have to pay much higher monthly payments. In the rare occasion that such deal is offered for a longer term, know that the repayment period is not likely to be extended up to 97 months.
Moreover, zero-percent financing applies only to a select models, particularly those found only on the dealer lot; it doesn’t apply to premium vehicle models and special option packages.
Another thing you can expect is less savings. If you qualify for zero-percent financing, it would be more difficult for you to haggle over the vehicle’s purchase price. Dealers will be hesitant to cut you a deal regarding the price, especially since they will not be earning profit from financing. In order to boost your chances of successfully driving down the price, only bring up the subject of zero-percent financing after you have negotiated on the price.
To get or not to get
Zero-percent financing is often offered together with cash rebates, but car buyers cannot take both. You have to choose one or the other. At first glance, zero-percent financing is the better option and in some cases, it is. However, there are instances wherein you could save more money over the life of the loan with cash rebates. Cash rebates are like free money given by the car manufacturers to be deducted to the price of the vehicle: if a car is worth $17,000 and comes with a cash back rebate of $2,000, you can buy the car for $15,000. If you have to choose between the two, don’t assume which is best. Do the computation and figure out which incentive will help you get a less expensive loan.