What Does It Really Mean?

Zero Percent Financing – Is zero percent financing for real? The answer is yes, no, and it depends.

The truth is that many auto dealers offer zero percent financing but it often has limits or is not available to everyone. Many times, zero percent financing is simply not the ‘deal’ it seems to be.

Statistics indicate that only one of every three people who apply for zero percent financing actually qualifies. Of those that qualify, only a handful actually decide to take advantage of what seems to be an offer too good to be true.

Their reasons vary. Some people crunch the numbers and realize they would be better off negotiating a low-interest loan or taking a manufacturer’s cash back offer. Others realize the offer has limits. Dealers may restrict zero percent financing to select models, limit the loan term to a short repayment period with high monthly payments, or refuse to offer zero percent financing to customers who chose the cash back option.

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For many savvy consumers, cash back saves them more than zero percent financing, especially if they’ve negotiated a good purchase price. Consider a buyer offered $3,000 cash back or zero percent financing on a $15,000 car. If the buyer takes the cash back option and puts $1,000 down, he will pay $220 a month for five years based on an interest rate of 7.5%. If the same buyer chooses zero-interest financing and puts down $1,000, he or she will pay $233 per month on a $14,000 interest-free loan.

The more expensive the vehicle, the more attractive zero percent financing becomes. To determine the best option, get your pen and paper and do some serious number crunching.

Anyone considering zero percent financing should consider the following:

• Armed with your FICO score, do some research to estimate what interest rate you can expect to pay. Meet with banks and credit unions to see what interest rate they will offer and how it compares to the pros and cons of zero percent financing. Firm up financing before you shop for a car and start talking deal.

• Research car prices thoroughly and negotiate the purchase price with dealers before you begin discussions about financing. Keep the car price and payments terms completely separate.
  Ask dealers if their zero percent financing offer has limitations and if so what they are. Don’t believe a salesperson that insists you must pay full sticker price to qualify for zero percent financing. They may wish this were true, but it isn’t.

Keep some old basics in mind, there is no free lunch – and if it sounds too good to be true …