Thursday, November 29, 2012

0.00% Financing Myth

Is 0.00% auto loan financing always the best deal? Maybe not.

Consider the following example;

Saw a manufacturer’s offer of 0.00% financing or $3,000 off the price of the car. Which is better for the consumer? Consider a $23,000 vehicle;

$23,000 financed at 0.00% interest for 60-months would be $383.33 monthly. (Total of payments = $23,000)

$20,000 financed at 2.75% interest for 60-months would be $357.14 monthly. (Total of payments = $21,428.40)

A credit union member financing that vehicle with the credit union at 2.75% (assuming they qualified for that rate) would save $1,572 over the loan period.

Lending rates are already low now so a 0.00% rate does not offer the savings that most people think it would when compared to a decent rebate or price discount.

Another big advantage here is that the consumer would have equity in the car and be in a much better position if they totaled the vehicle or needed to sell within a few years. The key with any major purchase is to compare all available financing options and review the differences.