I need to buy a car, and was going to go to the credit union and finance a used car. Now, several regional new car dealers are advertising 0% interest on new cars. One Chevy dealer even advertises that it is doing this in an effort to help jump start the US economy (to the patriotic music in the background).
Anybody know what the catch is?
Thanks.
There are two basic “catches” to 0% interest. The first is that typically, the dealer will require you to surrender the manufacturer’s rebate in order to get the deal. The second is that you must agree to a relatively short-term loan, with consequently high payments.
10% APR can be better than 0%. Let’s assume you want a car that costs $15,000, with a factory rebate of $2,000, and you have a trade-in worth $3,000 wholesale.
10% 0%
Cost $15,000 $15,000
Less trade - $3,000 $3,000
Less rebate - $2,000 0
Months finance 42 24
Amount to finance $10,000 $12,000
Finance charge $1,895 0
Monthly payment $283 $500
Total cost $11,895 $12,000
Savings at 10% $105
You see? It’s that rebate, up front, that makes the difference.
also the car is priced to compensate for the 0% offer. i bet if you went along with a load of notes and asked for a discount for cash they would agree. in other words it isnt really 0% finance.
The above is partly true, but it is also true that this is a very cyclical business. Dealers are overstocked, and “have priced to move.” Manufacturers are cutting back on production, but there is still a lot of inventory. They want to unload the cars, and there are a lot more deals out there than there were a year ago. Part of this is the 0% financing.
Even assuming all of the above is true, which is better–0% and no dealer rebate, or 1.9% and no dealer rebate, or 6.9% and no dealer rebate?
Not necessarily, Niobium Knight. The dealer cost for the base model of any car, and the options on the car, are not dependent on the offered financing - nor is the MSRP.
It’s possible that “dealer-added value” stickers, that increase the cost beyond MSRP, may be done with a particular financing package in mind. But those are worthless, anyway – the only party that gets value out of “dealer-added value” is the dealer.
Asking for a “discount for cash” is a sucker’s game. The best way to buy a car is to first make an offer for the car with a cash price, based on a reasonable markup of the true dealer cost. Then get the fair wholesale value for your trade-in, if any, and apply your equity in that car, and your down payment, to the deal. That price is the cash price for the car. Once you’ve determined that figure, you know how much of a loan you need to buy.
A loan of any kind is simply a purchase of a pile of cash now, to be paid back later. $240 per month for 48 months at 10% APR buys a lump of cash - $9463.
So many people buy cars by telling the salesman, “Keep my payments at $300 per month.” You may as well hand him your wallet and bend over.
Another component of the 0% interest loans is the phrase “for well-qualified buyers”. This almost certainly means someone who has an exceptional credit rating, of which there are very few. Even fewer of those buyers would purchase a car at the insistence of a commercial narrator.
Well, if you buy a Saturn, the cars all have one price regardless of the dealership so 0% financing over 36 months is the cheapest way to go.
Check out this thread: http://boards.straightdope.com/sdmb/showthread.php?threadid=89737.
It offers a little more detail. But in short, you don’t need stellar credit; there are limitations; price and financing are two different things; and ALWAYS isolate the dealer out of the financing (even when using GMAC/Ford Credit/et al).