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What You Need To Know About Zero-Percent Car Loans | Edmunds.com

Edmunds.comEdmunds.com Posts: 10,059
edited April 2017 in Editorial
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What You Need To Know About Zero-Percent Car Loans | Edmunds.com

Interest-free financing can make new cars even more attractive to shoppers. Here are some factors to keep in mind.

Read the full story here


Comments

  • scott31scott31 Posts: 292
    Your "Zero Percent Don'ts" are terrible. NEVER put any money down on a 0% loan. It's FREE money. Also, if a lender gives 0% for 72 months, grab it. It's FREE money. You can pay it off at any time, but why would you. It's FREE money.
  • MichaellMichaell ColoradoPosts: 125,201
    I used a 0% incentive when I bought my 2003 Saturn L300. Nice to have not paid any interest on a car I kept for 8 years and over 90,000 miles.

    Did you get a good deal? Be sure to come back and let us know! Post a pic of your new purchase or lease!


    MODERATOR

    2015 Subaru Outback 3.6R / 2014 MINI Countryman S ALL4

  • I agree with scott31. The "don'ts" are terrible. Since this article is supposed to be about financial advice, it doesn't matter if you're tired of the car at the end of the loan. You should be keeping the car for much longer than 60 or 72 months to minimum the annual cost of car ownership. Why would you repeatedly pay for a high rate of depreciation? I'm also not understanding the recommended 20% down payment. If you have the money for a 20% down payment, don't you still have that money in your pocket if you financed 100% of the car at 0% interest? If you had a collision and the car was totaled and you owe more than the car is worth, you use the (would-be) down payment money to cover the difference.
  • carboy21carboy21 Posts: 760
    There is no free lunch.
    Zero percent loan is offered in lieu of discounts on the MSRP.
    Instead of giving ten percent off on MSRP, the dealer gives Zero percent financing on the full MSRP.
    One has to run the maths to see which is more beneficial .
  • MichaellMichaell ColoradoPosts: 125,201
    carboy21 said:

    There is no free lunch.
    Zero percent loan is offered in lieu of discounts on the MSRP.
    Instead of giving ten percent off on MSRP, the dealer gives Zero percent financing on the full MSRP.
    One has to run the maths to see which is more beneficial .

    Not always. I used my GM Supplier discount along with the 0%.

    As the article states, it may be true that you can have an incentive in the form of a rebate or the 0%, but not both. Doesn't mean you have to pay MSRP, however.

    Did you get a good deal? Be sure to come back and let us know! Post a pic of your new purchase or lease!


    MODERATOR

    2015 Subaru Outback 3.6R / 2014 MINI Countryman S ALL4

  • I negotiated a deal way below all the rebates, Costco program, TMV, etc.and then still got 0% financing TOO. It was the last day of the month. I totally agree -- if someone is going to lend you money for 0% don't put anything down, take the longest term you can get, and don't buy any Gap insurance or anything like that!
  • isellhondasisellhondas Issaquah WashingtonPosts: 20,225
    Actually this isn't "free" money. They just build the cost of the loss of interest into the price of the car.

    Sounds good though. With bank rates as low as they are now they can do this without having to ropll too much of that money into the price of the car.
  • karhill1karhill1 Posts: 163
    The two do nots in this article are foolish. It seems all these "experts" fail to actually take the time to understand the math. Rather, they simply parrot what they are told by others.

    I fail to understand why all these so called "experts" always advice putting at least 20 percent down? Making a large down payment is generally only wise if a person has bad credit. For a person with good credit, putting money down on a zero percent loan is not usually the wise choice.

    Let us say you buy a $30,000 car at zero percent and put 20 percent, or $6,000 down. Your car is totaled and the insurance company pays you $27,000. The net cost to you was $3,000.

    On the other hand, you buy that $30,000 car and put nothing down. Your car is totaled and the insurance company pays you $27,000. The net cost to you is also $3,000. No difference.

    However, not putting the $6,000 down means you could leave the money in an interest bearing account. This would mean not putting money down lowers your net out of pocket payment to a bit less than $3,000 due to the interest your $6,000 would earn.

    In addition, auto loans are usually very inexpensive for folks with good credit. Other sources of money, such as credit cards and personal loans, do not have such low interest rates. Should an unexpected situation arise, having the money available could result in a person not having to access more expensive sources for the cash.

    Other than interest, not an issue with zero percent financing, or a situation where a down payment is required to obtain a car loan, there is no compelling reason to put money down when purchasing a vehicle. In fact, not putting money down can often be the wise choice as it is always better to leave the money in your possession.

    I always take and recommend taking a zero or .9 percent auto loan for the maximum period allowed. As stated, you can always pay the auto loan off quicker and have the loan paid ahead. A paid ahead loan will also free up cash should a situation arise where cash is needed.

    There is no increased cost taking a zero percent loan for 72 months. For a $30,000 vehicle, the cost is $30,000 regardless of whether you pay cash, finance for 36 months, 60 months or 72 months. Once again, it is almost always better to retain the cash.

    GAP insurance can be wise, but not if purchased at the dealership. That will cost you money. Why, because of the several layers of profit. The provider of the GAP coverage knows what the average payout will be. Probably not more than $100. The GAP provider will sell the product to the dealer for $200. The dealer will add its profit and a profit for the F&I manager. The dealer will gladly sell the GAP product to the buyer for $600. So, the buyer pays $600 for a product which should cost them $200.

    Many insurance companies provide a GAP like product for $180 to $200, far less than a dealer's price.

    GAP, like any product sold by an F&I manager, is a huge profit maker for dealers. Fact is dealers make more profit in the F&I office than they usually do from selling the new vehicle. The smartest advice any car buyer can heed is to just say NO to any product offered by that smiling F&I manager, who is simply the dealer's top sales person.
  • greg1258greg1258 Posts: 1
    Pay cash.
  • hglmisskhglmissk Posts: 2
    I just bought a Subaru Outback yesterday in California for 1.9% for 72 months. They just came out with 0% for 63 months today. Can I get them to honor and change it to that deal?
  • kyfdxkyfdx Posts: 131,331
    hglmissk said:

    I just bought a Subaru Outback yesterday in California for 1.9% for 72 months. They just came out with 0% for 63 months today. Can I get them to honor and change it to that deal?

    Nope. New month, new programs

    Did you get a good deal? Be sure to come back and share!

    Edmunds Moderator

  • hglmisskhglmissk Posts: 2
    I drove off the lot at 9 pm with my car and asked them several times about the July offers and they kept saying that it wouldn't go that low for that length of time.
  • kyfdxkyfdx Posts: 131,331
    hglmissk said:

    I drove off the lot at 9 pm with my car and asked them several times about the July offers and they kept saying that it wouldn't go that low for that length of time.

    Enjoy your new Outback!

    Did you get a good deal? Be sure to come back and share!

    Edmunds Moderator

  • isellhondasisellhondas Issaquah WashingtonPosts: 20,225
    hglmissk said:

    I drove off the lot at 9 pm with my car and asked them several times about the July offers and they kept saying that it wouldn't go that low for that length of time.

    The manufacturers don't tell their dealers what is upcoming! It's always a surprise.

    Think how good you would be feeling now if the rates had gone up?

    And, as our Host said...Just enjoy your new Outback!
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