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Zero down! Zero interest! Zero payments for Six Months! You'll hear one or all of these deals at different times. What can go wrong with deals like that?
Just about everything. These ads are promoted heavily at different times, so you should know the facts, starting with the fact that these promotions can be some of the most deceptive and unfair to the consumer.
By using word games and by deliberately obscuring details, the promotions hurt unwary consumers' pocketbooks in big ways: Read the very fine print and you'll see this:
- Zero down payment doesn't mean no money – Every buyer still has to pay tax, tag, and license, which can run over a thousand dollars. That's a down payment in my book.
- Zero Payments for Six Months! – Are the finance companies being nice and making your first six payments for you? Of course not! They are doing one of two things: either adding the six payments to the end of your contract, or, even worse, adding those first six payments into the loan. Either way means you end up paying more in one way or another..
- Zero percent! – In addition, you might have seen that zero percent is legal bait and switch. According to CNW Marketing Research, barely 9 out of a hundred people drawn to a dealership because of zero percent financing actually get it. To make matters worse, the research company found that consumers don't negotiate on the actual price of the car when they go to dealerships for zero percent. They don't realize the price of the car and the cost of financing are two separate issues. Those consumers can pay thousands more than they need to pay.
Can you do better than zero percent?
If a rebate is offered as an alternative to 0%, the answer is often yes! To do so, you'll need to apply the rebate as a down payment on the vehicle.
Should I take a zero percent loan or a rebate? It all depends. Go to our auto loan calculator "Should I Take a Rebate or Low-Cost Financing?"
You could save a considerable amount if you
- forgo the dealership 0% interest rate;
- take the rebate and use it as a down payment;
- get a low interest auto loan at DCU
For example, this calculator will tell you that if the purchase price of a car is $15,000, with a dealership offering a cash rebate of $2,000 or 0% financing for 60 months, a person could save over $1,000 by using the rebate as a down payment and financing with DCU if they have good credit.
Compare financing before you buy
Compare any dealer's financing offer to DCU's. Ask the dealer to completely fill out a copy of their finance contract, but don't sign it yet. If the dealership refuses to give you a completed copy of the contract to take with you, chances are, they aren't cheaper.
Bring the unsigned contract in to any DCU Branch or fax it to us at 508.263.6392. DCU will assess their loan and we will tell you if we can beat their financing or not. If we can't beat their offer, we will tell you so, and send you back to the dealership.
DCU also has an arrange with different dealerships to provide DCU financing right at the dealership. To learn more about the DCU Auto Buying Service, go to our Auto Premier Auto Buying Service.
Are you currently paying too much?
In the last several years, thousands of members saved millions of dollars by moving their auto loans to DCU. Every one of these members thought they were getting a cheaper rate at the dealership, and found out they were wrong.
How can you tell? For an approximate estimation, go to our simple "Auto Loan Refinance Calculator" on our Second Chance Car Loan page. Fill in
- the loan term you desire,
- the total loan amount you desire,
- your approximate credit rating,
- your current monthly payment and
- the approximate loan term remaining (in months) of your current loan.
For a more exact figure, fax the above information to us at 508.263.6392. Please include your name, member number and a way to contact you. You can also email us or visit any DCU Branch.
Every day we save members money over dealer financing – often even when zero percent financing is offered. What should you do if you're in the market for a vehicle and see one of these ads? Slow down! Remember that speed in the car business can cost you thousands. Use StreetWise to help save those thousands!
How do you compute for losses on an upside down trade-in of a car, for purchase of a new car?
- Total of monthly payments made for 15-months: $8,505
- Down payment made: $4,750
- Trade-in value (estimated based on black book, 24,000 Km): $28,000
- Total obligation (all-in incl. taxes, 5% interest, 84-months): $48,500 [this was 'day 1' total obligation]
Basically, I'm thinking like this:
- I "sell" (trade-in) my car to the dealer for $28,000
- However, I still owe the financing company $35,245 (48,500 total obligation, less 8,505 total payments already made, less 4,750 downpayment)
- So $28,000 less $35,245 = ($7,245)
Meaning, trading in my current car, I immediately lose $7,245, not to mention I will start a new 84-month term. Is this correct?
Numbers: Estimate you still owe around 37000 (48500 - 4750, 5% interest, 618 per month payment).
Initial price, down payment, payments made - none of these mean anything.
Ask your lender, "What is the payoff of the current loan?" Next, sell or trade the current vehicle. Compare to the amount owed. Any shortfall has to be repaid, out of pocket, or in some cases added to the price of the new car and included in the principal of the new loan. You cannot calculate how much you still owe the way you have, because it totally ignores interest.
Advice on practicality: Don't do this. You will be upside down even worse on the new car from the instant you drive off the lot. Sell the current vehicle, find a way to pay the difference - one that doesn't involve financing. Cut your losses on the upside down vehicle. Then purchase a new vehicle. I'm in the "Pay cash for gently used" school, YMMV.
Another option is to go to your bank. Refinance your car now to get a lower interest rate. Pay as much of the principal as you can. Keep that car until it is paid off. Then you will not be upside down.
If you're asking how to use the estimator on the webpage. Put the payoff in the downpayment as a negative and the trade in value in the trade in spot. Expect the payment to go up significantly.
Another opinion that might be practical advice. Nothing we say here will convince your financially responsible spouse that this is a good idea.
I think you are making this more complicated that it has to be. In the end you will end up with a car that you paid X, and is worth Y. Your numbers are a bit hard to follow. Hopefully I got this right.
I am no accountant, this is how I would figure the deal:
The payments made are irrelevant. The downpayment is irrelevant as it is still a reduction in net worth.
Your current car has a asset value of <29,500>. That should make anyone pause a bit.
In order to get into this new car you will have to finance the shortfall on the current car (29,500), the price of the vehicle (45,300), the immediate depreciation (say 7,000). In the end you will have a car worth 38K and owe 82K. So you will have a asset value of <44,000>. Obviously a much worse situation.
To do this car deal it would cost the person 14,500 of net worth the day the deal was done. As time marched on, it would be more as the reduction in debt is unlikely to keep up with the depreciation.
Additionally the new car purchase screen shows a payment of $609/month if you bought the car with zero down. Except you don't have zero down, you have -29,500 down. Making the car payment higher, I estamate 1005/month with 3.5%@84 months.
So rather than having a hit to your cash flow of $567 for 69 more months, you would have a payment of about $1000 for 84 months if you could obtain the interest rate of 3.5%.
Those are the two things I would focus on is the reduction in net worth and the cash flow liability.
I understand you are trying to get a feel for things, but there are two things that make this very unrealistic. The first is financing. It is unlikely that financing could be obtained with this deal and if it could this would be considered a sub-prime loan. However, perhaps a relative could finance the deal.
Secondly, there is no way even a moderately financially responsible spouse would approve this deal. That is provided there were not sigificant assets, like a few million. If that is the case why not just write a check?