Prior to discussing whether 0% financing is too good to be true, it is essential to define 0% financing. Everyone knows that a car loan involves borrowing money to pay for a vehicle. The bank or credit union does not provide this money for nothing. You must instead pay interest or a fee to the financial institution for lending you the money.
When searching for a car loan, you should definitely keep in mind the adage """"if it sounds too good to be true, it probably is too good to be true"""". Oftentimes, the 0% rate is a """"teaser rate"""" designed to entice customers, and it may not apply to you or may not be the best deal.
The issue with 0% financing is that not all prospective car buyers qualify for this incredibly low rate. The too-good-to-be-true interest rate applies to individuals with extremely high credit scores, impeccable credit histories, and minimal or no debt. This means that approximately 5% of the population is eligible for the 0% rate. Moreover, if you do qualify, you will likely be required to make larger payments over a shorter period of time, which may be difficult to accommodate in your monthly budget. If you do not fall into this category, you may be required to pay a much higher rate.
Even if you qualify for 0% financing, you may be surprised to learn that it may cost you more in the long run. If the dealer offers you a choice between 0% financing and a cash rebate, taking the rebate and financing through your local credit union could save you money, despite their higher rate. Let's calculate:
Credit Union Auto Loan versus Dealer Auto Loan
• Vehicle acquisition cost: $20,000
• Cash rebate in lieu of zero percent financing: $ 3,000
• Financing amount: $17,000
• Interest rate: 2.49 percent APR or zero percent with dealer
• Loan term is 48 months
• Monthly payments range between $372.46 and $416.67 with 0% financing
Total savings/loan term: $2,122.08
There are numerous reasons to obtain an auto loan from a credit union. Here are only a few:
Credit unions are able to provide auto loans because they have the capital and a solid rapport with car dealers.
If you have credit issues, you have a greater chance of having your loan application approved.
Credit unions are non-profit organizations that strive to provide excellent customer service to their members.
At a credit union, members typically have a more personable experience, allowing you to discuss your loan concerns openly, explore flexible repayment options, and assess your financial situation.
Because they are more in tune with their local communities, credit unions are more likely to work with you if you are having difficulty making payments.
Low auto loan interest rates are available for longer terms as well as shorter terms at your credit union, allowing you to obtain lower monthly payments.
Since credit unions do not charge application fees or prepayment penalties, you may save money on the total cost of the loan.
Therefore, the next time you see a 0% rate, do your research and get pre-approved at your local credit union prior to shopping for your dream vehicle. Uninformed buyers are absolutely the worst!!!"""