Why bother offering it since the only people whom qualify are people with no debt. Just like credit cards, people with high debt get reamed with high interest and people with no debt get low interest. Is this what they mean by the rich get richer and the poor get poorer.
They offer the low interest rates for the same reason every store offers a really cheap item the day after christmas. To get you to go there. At thanksgiving, they tell you sorry we do not have those anymore, but we can offer you this. Same thing. Once you get there and can not qualify for the low interest rates, then they turn on their sales pitch and try to get you into a car with a higher rate. The old bait and switch.
What to really look out for is the no interest or payments for x amount of time. This is really where you can get screwed. Usually, they tell you that you do not have any interest for x amount of time and will not if the amount is paid in full when x time is over. But, if you are not paid in full by x date. Not only do you now have interest, but they back charge you from the time of the agreement. People often think the interest starts at or after the x date. Not so.
But, this is not as bad as the no payments for x amount of time. If one gets caught up in one of these. First, the interest rates are being applied to your borrowed amount and since there are no payments, the total payoff keeps climbing and climbing. By the time the amount is paid in full. You end up paying a hell of a lot more than what you thought you would have paid if you started making payments at the time you got the loan.
I am not sure of the math. I will leave that to some brain that reads this. but here is an example. Say you buy a new car for 50,000 at a interest rate of 8% for 66 months. They give you two options.
Start making payments 30 days from the signing making 66 payments.
Or
No payments for 6 months. Then once started, payments are for 66 months.
I think you will find out the second option is not a very good idea at all.
The theory is that if you can get people in the showroom, you can get them to want to buy the car a lot easier than if you can’t get them in the showroom. Then, once they want the car, the hard work is done.
So at that point, if they don’t qualify for 0% interest and the best you can offer them is 1.9%, they’ll rationalize their purchase anyway because now they want the car.
Most of the 0% rates are based on a 36-month loan and are offered instead of a sizable rebate. Five-year loans have a higher interest rate and, once again, by taking this, you forfeit any rebate. I would rather have a $2,000 rebate, 6% interest, and 4-5 years to pay it off.
Getting financed through a dealership for a $15,000 car at 0% interest for 36 months would be $416.00/month. Getting financed through my credit union at work a $15,000 car with a $2,000 rebate and 6% interest for 4 years would be $287.08/month. I could afford option 2 much easier than I could afford option 1. You really need to do your homework before buying a car. Get your financing approved and check out the N.A.D.A website to make sure you’re not getting gipped, and visit the manufacturer’s website for more specifics on the car you’re wanting to buy. I’m in the market to buy a car and I’ve been researching several of them… haven’t decided which one I want yet but when I go to the dealership I’ll be ready for 'em! Car salesmen are pretty high up on my shit list!
It’s ‘worse’ than that. If you offer cash / full payment for a car, you can often get a discount.
Of course you could try not running up a large credit card debt (and paying high interest on it).
People with no debt pay no interest.
Best of all, save up, earn interest and then get discounts. Have patience before buying luxuries.
Rachelle has the right idea. I used to work for an “unnamed” dealership. (got yelled at for trying to advertise on the boards) Anywho, my place of work didn’t play the money game. Never did. All of the advertisements we see are meant to get us in the showroom. (where you will be set upon by a flock of ravenous salespeople) The zero percent is a hook to bring you in. Some of us can’t afford a three year payment. From prior experience…take the rebate instead of the financing IF you plan on keeping your car for the duration of the loan. If you get rid of your car before the loan is up, you don’t get the benefit of saving on the interest. I know this isn’t all coherent. The most important phrase to remember when buying a car is “It’s not the deal you got, It’s the deal you thought you got”…
Much sound advice here.
Just want to add that there is really no excuse anymore to deal with only one dealership, unless perhaps there is only one outlet for the model you want within a hundred miles or so. If you know roughly what you want, use one of the Internet services that allow you to solicit bids from several dealers in the area, then select the lowest. If you don’t know what you want, go to a dealer, take a test drive, refuse any attempts to close a deal then and there, go home and follow the bidding process outlined above. Scratch any dealer that insists that they only offer a deal at a face-to-face meeting.
Be adamant: get the written, final price of the vehicle first. Then, and only then, start negotiating things such as trade-in values and payment terms.
I followed this procedure last year to buy a new car, and still can’t get over how much anxiety and stress (not to mention money) it saved.
Why don’t they teach this stuff in high school?
i want you on my local school board! that is the most sensable question i have read on these boards in a long time! good on ya’!
i was in the retail auto business for a while and it was amazing how little people know about making car/motorcycle/vehicle purchases. its really sad watching some poor sap sign his life and credit away just because some clever advirtising and a slick salesman sold him on the car of his dreams and made him think he could afford it. (and good for them! they gotta eat too!)
does he understand what he is signing? does he care? who knows. it would be nice, though, to have a nice little coarse in practical finance offered in the high schools instead of being forced to read Hawthorn’s freakin’ “Scarlet Letter”
just a little ranting-- carry on! (and do what El Kabong said)
Damn, I have gotten 0% financing in the past, and 0.9% as well. I have debt, and plenty of it- house, car, student loans, etc. I, however, also have an excellent credit rating.
You can have debt, you just can’t have bad debt. Pay your bills on time and much inconvenience can be avoided.
Oh, and it was for 60 months, too!
But seriously, use the Internet, it is your friend. And try to buy from a fleet manager rather than just a salesman. We bought a couple of Fords through a fleet guy and had a great experience. We knew exactly how much the dealership had paid for the car (thanks to said Internet), and waited to see if he’d try to pull a fast one. We were pleasantly surprised to find out that when he said “I’m selling you this car for $217 over dealer invoice”, it was true.
I saw on WGN news today it said only 3% of buyers qualified for 0% financing and it was only available on certain models and years. BUT it said nearly 50% of GM buyers qualified for it and they got 60 months to pay it off.
I wish my job was stable as it would be fun to check it out.
Just a little quibble, Rachel is correct, 4-year loan at 6% with a $2,000 rebate saves you a total of $345.34 over the term of the loan versus the 0% for three years, but my calculator says your monthly payments are $305.31.
My first post, but I love getting the straight dope.
TheBubba.
Dealerships do this because people fall for it. It’s as simple as that. If customers were smarter, businesses wouldn’t constantly insult their intelligence like they do now.
BTW, salreus, is there a reason you start a new sentence for each clause?
Oh, and another piece of advice: after you agree to the price of the car, ask for a bid on the financing. Then go to a bank and ask whether they can beat it. The dealership financing is almost always more expensive than bank financng. Which sense; the bank is in the business of giving out loans. You wouldn’t buy a car from a bank; why would you get a loan from a dealership?
Well, Geez…
If you’re in debt already, why the heck are you buying a brand new car, anyway? If you gotta make payments on it, chances are you just can’t afford it, no matter WHAT the interest is.
Go get a used car, and pay cash for it, or pay it off a lot quicker, and then save up for your next one.
Remember, a 7,000 dollar car at the dealer costs well over 10-11 thousand dollars if you make payments on it.
If you can pay cash, you can get it for 5,000. Remember, no dealer fees (that’s 200-400 dollars right there!), and no taxes (that’s another 400-800 dollars, depending on where you live.) But you didn’t hear it from me.
Cash is King, baybee!!!
As for the rich getting richer and the poor getting poorer, well, did you believe that there is NOT a time value to money?
If you are going to use someone else’s money to buy a car, or anything else, you ought to be willing to pay the market rate for it. If you have trouble with that, well, then don’t be buying cars you can’t afford.