As I said in an earlier post this week, I’m looking at my options when it comes to cars. Since our car has had some issues over the last little while, we have been looking down the line a little and considering looking for a new car. While our car is still running – I do have concerns that it may only be on the road for a little bit longer – how long we don’t really know.
Just as with our budget and finances – we have adopted a proactive approach and this is how we are looking at our current vehicle situation. My husband and I have discussed when would be the best time to get a new vehicle – and while we both decide we do want to start looking before our car decides to completely quit on us – we are not sure when is exactly the right time to actively start shopping around for a car.
One thought did come to mind about how we can narrow down this timeline. We decided to keep our eyes open for special promotions and deals on vehicles and would view this as an opportune time. This leads me to the subject of today’s topic – 0% Car Financing. This type of car promotions attracted my eye – and I decided to look into this more thoroughly.
I admit this idea made me really excited -however speaking with a friend – they mentioned that some times this offer might not be exactly what it seems. While this conversation made me feel a little deflated – I figured I would look into the situation a bit more and either way it is better to know the facts. I wanted to get to the bottom of if there is a benefit of getting a low – or no – interest rate car financing arrangement compared to other methods.
The Down-Low on 0% Car Financing
Most people have probably see 0% car financing advertised at one time or another, and as interest rates have been at all time lows, this seems to be more common as of recently. Most people will also agree that this sounds like a great deal. However – here are some exceptions or as they say – catch 22 ‘s.
1) Not Everyone will Qualify
While advertised as 0% financing in the large print of most promotional ads – typically this rate only applies to individuals with a strong credit history. So, if you are looking to improve your credit and rebuild your score through 0% financing – this may not actually be an option for you. In fact, as I have learned only approximately a third of borrowers actually are able to take advantage of this advertised rate.
2) Higher Monthly Payments
This second catch refers to the amount of your monthly loan payments. Just with many other types of loans, paying a lower interest rate or even a rate of zero on a car loan could mean that your the length of your term may be shorter, for example 3 years or less. This means that your payments could be much higher each month, so that you can pay off the total loan in the set amount of time. Specifically, this could mean you might have to pay over $400 per month, while with a longer term, your payment might be as low as $250-295 each month. As you can see, while your interest rate may look lighter, your income could be negatively affected with expensive monthly loan payments on top of other bills.
3) Large Down Payment
This last point, also goes against the financial benefit of the 0% financing claims. With this financing promotion, a larger down payment is usually also part of the deal. Many of these arrangements require a down payment of at least 25% of the total vehicle value. Alternatively, when entering into a financing agreement with a more standardized interest rate, you may only be expected to make a down payment equalling 10% or sometimes even less. Once again, this is an example of how the deal you get on the rate does not end up really saving you all that much money when all is said and done.
Ultimately, each person will make their decision based on what they think is best for them, while weighing the pros and cons of 0% financing and what that will mean for them. Like any good story, there are two sides that need to be examined to fully understand the situation and make the most educated decision possible. This topic definitely open my eyes to some crucial information that I will take back to my husband and discuss.
