Is 0% Financing A Good Deal?
The 0% financing sounds terrific! So naturally you wonder, "What’s the catch?"
Of course, there's a catch - several, actually.
You won't find the information below in the dealers' newspaper ads, but we're not shy about telling you.
Only 9% Of Car Buyers Actually Qualify For 0% Financing
The tiny print says "Not everyone will qualify." The truth is, hardly anyone qualifies. Need proof? A recent survey showed that your chances of getting a 0% APR loan are just 1 in 11*.
Qualification for 0% APR financing is usually based on your FICO score, which includes many variables, such as the number of credit cards you have, the balances you carry, how long you’ve had them, and even the current phase of the moon.
Okay, we're not serious about that last one… but the truth is, FICO scores are difficult to figure, and if you're one of the 10 out of 11 who gets turned down, you won't even know exactly why. The bottom line? 0% financing is not for everybody.
*CNW Marketing, Bandon, Oregon, 2002.
You Pay More For The Car
You can take the "super-low" dealer financing, or you can pay less for the car by taking the rebate - but you can't have both.
As the chart below illustrates, it's much better to take the rebate.
In this case, we're talking about a car with a list price of $18,500. You're financing 100%. Here's how the numbers crunch:
| Dealer financing | Schools FCU financing | |
|---|---|---|
| Figures are for comparison only; your actual figures may vary. Schools FCU Annual Percentage Rate effective as of 12/17/04 and is subject to change. Rate based on 80% financing. Your rate may vary based on your credit score and credit history. | ||
| Sticker price | $18,500 | $18,500 |
| Rebate | $0 | <$2,000> |
| Loan balance | $18,500 | $16,500 |
| APR | 0% | 3.99% |
| Term | 3 years | 3 years |
| Monthly payment | $514 | $487 |
Taking the dealer financing costs you $27 a month! Another way you'll pay for getting a "super-low" rate. Most of the time, those rates come with really short terms, like 24 or 36 months. That results in uncomfortably high monthly payments. And when you're trying to fit a car loan into your household budget, it's all about the monthly payment.
How much of a difference does the term make? Say you're buying a new car for $24,500. If you go for dealer financing and accept a 24 or 36 month term, you better be ready to pay through the nose each month!
2 years: $1,021 3 years: $681
"Super-Low" Financing Isn't Available On All Models
If a model is popular, dealers don't need gimmicks to sell it. So the incentives and deals are typically available only on the models nobody wants.
It comes down to this - who has your best interests in mind? The car dealer? Or your credit union. See us when you're tempted by dealer financing. We'll show you that it's not the bargain it appears to be.
