Is a 0% APR car loan too good to be true?
No. A 0% car loan is not too good to be true. In fact, it is a great way to finance a large depreciating asset like a car.
An auto purchase typically involves a significant monetary outlay. The average car price in 2013 is now roughly $31,252. This type purchase is one that many consumers cannot make from existing savings. Many of these purchases require the potential buyer to obtain an installment loan to pay for the car.
In order to compete with other auto dealers, some will offer 0% financing. Basi.
Entering into the car buying coliseum can be traumatizing at best. Good luck with your adventure.
That said, somebody, somewhere has got to be paying for the money you'll use for this transaction. They are not getting money from any lending institution for free. So that cost is buried somewhere in the cost of your vehicle. Please do not fall for the "here's the invoice" gambit. There are incentives and cash available from the manufacturer to the dealer even after you pay "invoice price" that can add to dealer profit at "invoice price".
There is really NO SUCH THING as a 0% APR car loan. read the fine print! Every commercial I have seen, and documentation I have reviewed for clients or community members includes a "fee9quot; of some sort, based on the amount of the loan, which - in my opinion - is just hiding an APR on the loan.
This "fee9quot; is often stated like,
"monthly processing fee of $16.67 per $1,000 loan value"if my calculator is correct, that's basically a 1.667% loan. NOT a 0% loan. Don't get me wrong, a 1.667% loan is a phenomenal rate. but don't tel.
There are 0% APR car loans; however, they are only available for people with extremely good credit scores. Car companies use these advertisements to get people into their stores and then they break the bad news as far as what financing plans they can offer you. If you are about to buy or lease a car, I would advise you do to do your homework before you go to the car lot. See what specials and deals the dealership has advertised. Get a good idea on how much the car is really worth. Know what your credit score is and then figure out wha.
0% interest rates may be available, but that does not mean you are getting a good deal. A vendor could jack up the offer price and spread out your payments such that their inflows (your payments) were the same as those associated with a lower price/higher interest combination.
You also need to be wary of whether the initial interest rate is simply a teaser such that higher interest rates apply later in the contract. To help eliminate any confusion, request a complete payment illustration. Avoid someone who is unclear about your paym.
There are several moving parts in the purchase of a car. So you get a deal here and you overpay there. I would shop around and find out what the car should really cost. Then compare that to what you are paying for a 0% APR.
Buying a new car guarantees you are going to lose about 30% of the purchase price the minute you drive off the lot. Go to http://swaplease.com and you can find a realistic value for practically any car. You can assume the financing of those cars or get your own. It is worth doing a little work to keep from making a m.
Since lending money has cost, it stands to reason that it should be more than 0%
What a 0% car loan means is that the cost of financing is buried into the cost of the car. You don't see a separate line item that says interest, but it is in there somewhere. Unfortunately, if you tell your dealership that you are willing to pay cash for your car if only they reduce the price, since they now they don't have a cost of hidden finance, they will probably refuse.
That is because the dealer is not paying for the cost of finance, th.
Hey there, I think the "bad9quot; part about this is that when you hear 0% APR it gives you a false sense of savings. Whatever amount you would have paid in interest is likely to have been built into the price of the car, so in effect you are still paying the same amount, it just feels better! So, the key here is to be sure that the total price you pay for the vehicle is fair. There are some great websites out there to help you establish what a fair price is. One that I have used with great success is http://cargurus.com, but there are others. On.
The main problem with a 0% car loan is that you must buy a new car to qualify. New cars by default are almost always a poor "investment9quot; (although not by definition an investment) so you start out behind.
If you are determined to buy a new car, however, 0% is the way to go. Just be prepared to begin getting emails halfway through the loan period telling you that you "qualify9quot; to get another new car at 0% and can trade in your current "used9quot; car. That keeps the cycle of new car purchases going.
Good luck and I hope this helps!
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The Truth About 0% Financing Auto Loans
Since the market crash in 2008, auto dealers have taken a substantial hit in the realm of new car sales. In an effort to incentivize buyers in an otherwise stagnant market, the finance arms in partnership with key dealerships created the 0% financing deal. For some buyers, a 0% interest rate is enough to get them into a car salesman’s office, but for others, the financing offer seems too good to be true. Before diving into your next auto purchase, consider the advantages – and disadvantages – of this common financing offer.
In the simplest terms, a 0% interest rate car loan is one in which you do not pay interest on money borrowed from the auto finance company or dealership. Instead of making a profit on new auto loans with interest rates ranging from 2% for highly qualified borrowers to nearly 9% for those with less than perfect credit history, finance companies provide buyers an opportunity to pay the same amount as a cash buyer. The difference is that payments are broken up and repaid on a monthly basis. The majority of 0% car loans are funded directly from the dealership, not the underlying finance arm of a major auto brand. For a dealership, the amount of money earned on the sale of a car is the same under a 0% loan as it is with a cash deal, but the earnings are simply spread out over time.
The most obvious benefit to accepting a 0% car loan offer is the ability to repay the purchase price of the car over time without the additional cost of interest. Let’s look at an example. If you were purchasing a $25,000 vehicle new off the lot, and were approved for a five-year, or 60-month, loan with a 5% interest rate, your monthly payments would equal roughly $472. With that loan offer, your total interest payments over the course of the loan would equal $3,307 in addition to the purchase price, barring no additional principal payments. Conversely, the same $25,000 loan free of interest would require a $417 monthly payment, and of course, no interest expenses. The cost savings in a 0% interest car loan can be substantial for the right buyer.
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While 0% loan offers are a smart way to finance a vehicle purchase, they are not suitable nor are they available to every buyer. First, if you have less than exemplary credit, a no-interest loan is not an option. Because dealerships and finance companies are not making an additional profit on a 0% loan, they want to protect their default risk by only providing this offer to highly qualified borrowers. Additionally, 0% loans may only be available in reduced repayment terms, meaning instead of a 60-month loan, you may only have the option of a 36-month term. A short duration of repayment results in a higher monthly obligation, which may not be appropriate for borrowers with a tight budget. Finally, 0% car loans are often restricted to certain new models with no customization, creating the ability to negotiation on purchase price an uphill battle.
As a car buyer, it is important to understand how 0% interest rate loans are both beneficial and restrictive. If you cannot qualify based on credit history, do not have the monthly budget to afford high payments or want additional options on your new vehicle, chances are, a 0% loan is not in your future. However, in the current low interest rate market, financing a vehicle purchase does not have to be an expensive endeavor. To find the best auto loan rates for your situation, it is beneficial to compare bank and credit union offers with what a dealership or auto finance company provides. You’ll often experience a degree of savings by doing your research and obtaining financing before heading to the dealership.
Posted on November 6, 2015 by Melissa in Automobiles