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Executive Insights

Zero Percent Financing a Good Deal?

Finances and budgeting

Like siren songs luring unwitting buyers into dealerships, interest free offers really get shoppers’ attention. However, is zero percent financing really a good deal?

Let’s take a look.

What Zero Percent Means

As the name implies, zero percent financing means you’ll get the car loan with no interest charges. In other words, even though you’re borrowing money to buy a car, you won’t have to pay the lender a premium for allowing you to do so.

In most cases, the manufacturer covers the difference, in lieu of a rebate or some other cash back deal. The lender still gets paid because the interest free loan is baked into the price of the car. For this reason, zero percent deals can often require you pay a set amount, rather than negotiating a price for the car.

Many Will Apply — Few Will Qualify

The first thing you need to know about these promotions is your credit score must be strong for you to qualify. The floor is 700 in most cases. You’ll likely be turned down for the deal if yours falls below that mark. Here’s the thing though, if you didn’t know about that special condition going in, you probably wouldn’t find out until you’d test driven the car and fallen in love with it.

Then you’ll be told something along the lines of five percent is the best you can do with your credit score when you’re ready to sign for the loan. While technically this isn’t bait and switch, the dealer figures you’ll probably just say OK and go along with it. After all, you’ll have invested a couple of hours into the process and developed an emotional attachment to the car at that point.

Sometimes It’s Not Worthwhile

If you have good credit and can get a sufficient rebate, along with your preferred loan term, you might make out better with a conventional auto loan than free financing. If the zero percent deal forces you into a short term and a fixed price, consider tailoring the agreement to your exact needs rather than accepting what’s presented just to get the discounted rate.

In other words, it’s always a good idea to run the numbers to see where your best advantage lies before signing anything. This is particularly true when it means you can get the exact car you want, rather than whichever one the dealer wants you to have.

There Can be Additional Caveats 

Interest free loans can be limited to stock on hand or specific models. Now within that, you can do all right if you can find something you love within one of those categories — and all the other requirements line up.

You’re still accepting a long-term debt though.

Is it worth signing on to something you don’t really want just to save some points on the financing? This is a question only you can answer, but it’s certainly worthy of consideration.

Another factor is the loan’s term. In many cases, zero percent deals are for 36-month financing. This is great if you can afford the monthly payment dictated by such a short term. Few people actually can though. Additionally, if you find a manufacturer is offering both zero percent financing and rebates, it will be an either/or situation. You won’t get the rebate and the free financing.

So, is zero percent financing a good deal?

It can be, if all of the stars align just right. However, it’s smart to take some time to see what the realities are before seeking to avail yourself of one of these offers. After all, few things in life are more frustrating than getting excited about something, only to learn you cannot have it.


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Anna Papadopoulos
Editor, writer, teacher, consultant. Advocate for plain language, journalism, free speech, and tolerance. Feminist. Based in Sydney, Australia.
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