In these days and age, you will often see the auto finance industry advertising loans that are offered at ‘zero percent.’ However, in order to make sure that you reap the benefits of it you will first need to know what it is all about.
People often think it to be the best deals they can get while buying a new car. When you look for car finance, a zero percent loan may seem to be a very good proposition but what about getting a bit of cash bonus? It will be even better a proposition.
However, has this thought never come across your mind that what does the financer get by loaning such huge amount for no interest or benefit? Is this type of financing can be rightfully called ‘free money?’
Well, things are not exactly that but it surely is as close as you can possibly get. Here is an in-depth knowledge about such type of tempting auto financing.
A few stats and facts
Start your journey by looking at a few stats and facts. This will raise your confidence level as well when you negotiate for a zero percent car loan.
- At first you should know that this type of auto finance is not for everyone to avail. Typically, you should have a credit score well above 700 to be eligible for such loans. Higher, the better and easier for you to get such loans!
- A zero percent car loan can allow you to make some significant savings. Normally, when you compare such a car loan with a standard loan that comes with an average 5% APR you will see that you can save as much as $3,300 on a zero percent interest loan of $25,000 taken out for a period of 60 months.
However, of late the availability of zero percent car loan offers are less plentiful as per the study reports of Edmunds analysts. This report shows that:
- In August 2017 the zero percent car loans offered were 14.6% and
- In August 2018 however the number dropped to 7.4% only, almost to half.
The reason for this fall according to the industry experts is that rise in the rate of interest! This is because a zero percent loan is supposed to be free money for the buyer but not for the manufacturers of the cars. The car makers typically have to take the hit wile such offers are made. This is much similar in effect when they offer customary cash back rebates.
About the zero percent myth
Assuming that you qualify for a zero percent car loan and find one from a traditional bank or any online money lender such as Liberty Lending you must know whether it really is a zero percent deal. Though it may sound to you like a no-brainer but you must find out the catches in it, if any. If you are planning to pay cash for your new car it is even more worth considering.
A zero percent loan is thus called because the financing companies of the automakers typically forgo the amount of money they could have made provided these loans were offered with interest. They do this with an intention to sell more cars of a particular slow selling model by sparking such financing incentive.
- Analysts say that this approach allows the manufacturers to clear out their inventory and make room for the new model year of cars.
- They also say that when it pattern of availability of these zero percent car deals are concerned it is seen that it follows a very rigid one. Such offers typically peaks in the summer months and remain comparatively low in the other months. This is done to fuel sales of the outgoing model year.
There are times when a car dealership makes its own version of zero percent car loans and offers to the buyers. In these cases, it is the dealer that pays for the interest on your loan. This is done not only to sweeten the deal but also to incentivize you so that you make a larger down payment. These offers are usually made to those buyers only who already qualifies for a loan having a low annual percentage rate or the amount that is financed is deemed by the dealer to be a reasonable figure.
However, analysts cannot foretell whether or not this pattern will remain the same in this era of high rate of interests. This is because major car manufacturers such as Chrysler, Toyota and Nissan have already walked away from this zero percent loans bandwagon in summer 2018. It is now to be seen whether the still available offers made by car makers such as Kia, Ford, and Subaru still continue.
You will get a zero percent car loan only if you have excellent tier one credit. The range of FICO scores can vary from one car maker to another. Therefore, it is better that you call the dealer up and inquire about the requirements of eligibility.
On the other hand, if you have a low credit score, you too can consider having a zero percent car loan provided you have a very solid credit history of making payments on time. Your loyalty to a specific car brand may also win you such an offer.
Zero percent or bonus cash
You may be offered with a choice between bonus cash or a zero percent loans. You can choose bonus cash, which is ideally the way to go, provided the cash offered is sufficient enough to offset the charges on the loan that you are saving. Anything less than that makes zero percent loans a better choice.
Well, if you are too calculative, you may also avail a third option, which in most of the cases the dealer will not reveal to you. You can avail the bonus cash and later on refinance the loan if you find a much lower rate of interest.
However, the biggest benefit of zero percent loans is that you can keep money free for other emergencies and investment purposes.