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What is Zero Percent Financing?

by Autobytel Staff
May 20, 2011
0 percent financing

0 percent financing

In the world of higher automotive dealings, if you are wondering, “What is zero percent financing,” it is pretty darn self-explanatory. Zero percent financing means walking into the showroom, selecting a vehicle, determining the price, signing the loan papers, and rolling out with a brand new car. Sounds easy. Sounds fun. You’d think most folks would do it and fill their garages with new cars every other month.  

Is Zero Percent Financing All Good?

Well, zero percent financing has a few restrictions, and those restrictions prohibit about ninety percent of all car buyers from the program. Turns out people must qualify for the zero percent financing. Turns out they must have a high FICO score, around 750, and an excellent credit rating. Then they also need income, steady income, and high enough to make the payments, and the payments can be very high. And they must agree to the limited models the dealer offers for the program, and they lose eligibility for any rebates, and as a reward for qualifying, they must pay the price the dealer sets. So that’s what zero percent financing is, but is it a good deal?

For folks with steady cash who wish it paying top price for a new car, zero percent financing certainly places them in a new car without the extra interest payments and without losing a huge chunk of cash at one time. While this sounds like a good deal, we must ask ourselves if it is the best deal. Did the deal put the car in our garage with the lowest possible total out lay of cash?

Here’s where the pencil and the calculator come in handy because in the world of automobile financing, there is more than one way to buy a car. The key is looking at the initial price of the vehicle. Zero percent financing makes money for the dealer by making the buyer pay the premium price. Throw down enough cash at one time or high payments over sixty months, and the dealer is happy to waive any financing. But what if you looked at the deal another way?

Say you took the dealer’s rebate, lowered the initial price of the car by three to five thousand dollars and then found financing at a bank or credit union at around seven percent? It might work. The right financing may be able to net you the vehicle with a lower over all cost, including the interest. Of course, the car plays a factor. The numbers on a Ford Fiesta or Toyota Corolla will be far lower that on a CadillacCTS, and the better deal may be with the credit union for the Ford or the Toyota but going with the dealer financing for the Cadillac may be cheaper.

The Final Word on Zero Percent Financing

Every case will be different, but know that the zero percent financing option is out there and have no fear in exploring it. One last warning about the zero percent financing option: Read the fine print very carefully and understand what happens if you are late with a payment or miss a payment. In most cases, a late payment will void the deal, and a missed payment will jack-up the rates and apply finance charges retroactively, which means a good deal can quickly transform into a nightmare with the flip of a calendar page.

The car dealers and financiers have read their history and still feel the sting of the economy from 2008. Rest assured that they will present no financial product that will allow them to lose money. Zero percent financing sounds wonderful, and it helps brings buyers into the showroom, but when most buyers discover their inability to qualify for the program, the dealer has the golden opportunity to present alternative financing and ultimately achieve a sale, which makes zero percent financing one of the greatest marketing tools ever devised.


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