Because many car dealerships offer 0% financing, you might be confused and wondering if this rate is it too good to be true? Unfortunately, in many cases the answer is Yes.

Before discussing whether 0% interest is too good to be true, it is important to understand what 0% financing really is. When you get a car loan, as everyone knows, you are borrowing money to pay for a car. The bank or credit union does not give you that money for free. Instead, you must pay interest or a fee that you give to the financial institution for lending you the money.

The phrase, “if it’s too good to be true, it’s probably too good to be true,” is definitely something to keep in mind when looking for a car loan. Often times, 0% is a “teaser rate” that is meant to help you get in the door and may not apply to you or may not be the best deal for you.

The problem with 0% financing is that not all potential car buyers qualify for this super low financing. The too good to be true rate applies to people with very high credit scores, excellent credit records, and little or no debt. That means that only about 5% of the population qualify for the 0% rate. And, if you qualify, you will most likely have higher payments over a shorter period of time, which can be difficult to fit into your monthly budget. Unless you fall into this category, you can get stuck paying a much higher rate.

You might be surprised to learn that even if you qualify for 0% financing, it could cost you more in the long run. If the dealer offers you the option of 0% or a cash back, accepting the refund and financing through your local credit union could save you money, even if your rate is higher. Let’s do the math:

Credit union vs. Auto loan dealer

• Vehicle purchase price: $ 20,000

• Cash refund in lieu of 0% financing: $ 3,000

• Amount financed: $ 17,000

• Interest rate: 2.49% APR or 0% with the dealer

• Loan term: 48 months

• Monthly payment: $ 372.46 – $ 416.67 with 0% financing

Total Savings / Loan Life: $ 2,122.08

There are many reasons to get an auto loan from a credit union. Below are just a few:

Credit unions have the funds and healthy relationships with auto dealers to make loans.

You have a better chance of getting your loan approved if you have credit problems.

Credit unions are not-for-profit organizations and work to provide members with high-quality customer service.

Members tend to have a more pleasant experience at a credit union, so you can openly discuss your loan concerns, discuss flexible payment options, and review your financial situation.

Credit unions are more likely to work with you than traditional banks if you have difficulty making payments because they are more in tune with their local communities.

You may be able to get lower monthly payments with your credit union because low auto loan rates are available for longer and shorter term loans.

You can save money on the total cost of the loan, because credit unions do not charge application fees or prepayment penalties.

So the next time you see a 0% rate, do your homework and get pre-approved at your local credit union before you buy the car of your dreams. An informed buyer is definitely the best buyer!

Leave a comment

Your email address will not be published. Required fields are marked *