What's the other side of 0% auto financing?

I’m someone who’s been thinking of purchasing a new vehicle sometime in the next few years. To be honest, I hadn’t been planning on really starting to look seriously until towards the end of this year, but the 0% 60 month financing Toyota recently announced kind of sparked my interest in maybe pushing that up.

My question is how good of a deal is the 0% financing really, and more importantly is it typically offered at the expense of other deals. For example, if I went into a dealership looking to buy something with the financing, and someone else went in with $15k cash in hand, would we be getting similar deals except I’d be making payments would be over 5 years or would a cash buyer be able to get a better deal on the price of the car or other perks?

Assuming that the dealer would negotiate differently with a cash buyer as opposed to one using the financing offer, my next question would be how much better of a deal would one get with cash? For example, might someone with $15k cash available for a car purchase still be better off taking advantage of the payments (and investing their cash elsewhere)? Where are the trade-offs between financing and other incentives (assuming they exist)?

There are probably interest calculators out there that can let you compare to see whether you are getting the absolutely best deal. But even if it came out to costing more with 0% in total cost, I’d still take it. Why?

Because I could budget to pay off the car during the 0% financing period, and have the best of both worlds- paying no interest, but being able to spread out the payments which frees up income I can use for other things on a month-to-month basis. As well as building my credit score without having to pay interest in the process.

I think you want to negotiate the price of the car first, without any mention of financing. Once you’ve settled on a price, then you can discuss financing. What you don’t want to do is to discuss the price of the car in terms of monthly payments, because in that case you’re almost guaranteed not to do well in the negotiation.

Most 0% car financing deals that I’ve seen come with a cashback option – “0% interest or $2000 cash back” or something along these lines.

Even if the offer doesn’t come with cash back, cash is an extremely powerful negotiating tool. You should be able to negotiate a discount based on that. Bargaining is well and alive in the United States, and you’ve got to have cash for that.

Also, keep in mind that if it’s a new car, it’s going to be very difficult if not impossible to get a deal good enough to overcome the deprecation you’ll take just driving off the parking lot.

I concur 100%.

The dealership knows what they can expect to make from financing the car. Usually they’ll offer you 0% financing or $2,000 (or some other amount) off the cost of the car.

I usually don’t finance a car, but if I was, I’d go to my credit union (lower rates than from a bank) and look at the amortization schedule and see what the cost of the loan would be. Needless to say, it depends on the time and amount. Only then will you know what the 0% is worth to you.

Simultaneous post with Dre2xl was a bit frightening in it’s similarity.

I’ve gone back and fourth on the new vs. used. I understand the depreciation issues. But when I bought my new car last year, I tried really hard to buy a used car. But spending $15-30k on a used car was just hard to do. And it’s harder, in my opinion to really know what a used car is really worth, due to the litany of variables. A new car, it’s much easier.

If you are the type to want a different car every three years or so, I agree that buying new isn’t a great financial deal. But if you happen to be like me, and you’ll drive the thing for 10 years or more, depreciation is much less of an issue. I know the new car smell is the most expensive perfume in the world. But if you can afford it, and you really like it, isn’t that what life’s about?

Old CW, no longer valid.

Cash is not much of a bargaining tool when the dealership makes NO extra money off cash but does off of financing. Not 0% financing, true (well,a little, due to deals the Manufacturer does with the dealer), but still themake nothing off cash.

Also remember, you pay extra interest- 1 or even2%- to finance a used car.

Next, dudes used to buy a new car every 3 years or so. Now, with much more reliable cars, they often go 7-10. So, this meme is only correct if you’re one of those dudes that buys a new car every year and trades it in. **If you fully depreciate your car before trading it in, whatever extra depreciate the car gets hit with in the first year is completely meaningless. **

Now, with 0% financing vs 7% financing (for used) and with sometimes such deals as free maintenance and even cash back on top of 0% financing, buying new is the way to go. OR buying a 5yo beater at a good price from someone you know.

Usually, the cash back vs 0% financing thing is right there, up front, but sometimes in the fine print. Generally, it’s better to take the 0%, but ymmv.:smiley:

It’s been said, but it cannot be said enough times:

Negotiate based on the price of the car, not your financing options.

I’m not being cynical about this, but it’s good advice; never trust car salesmen. Their reputation for dishonesty is very deserved. They will use every deception, every complication, and every trick in the book and tricks not in the book to get you to pay just a few dollars more, at every possible opportunity.

Introducing financing options before agreeing on a price simply enables them to try to confuse you at that point. Get the absolute, not-one-penny-of-extras-more price, all taxes and surcharges and other charges and floormats and everything, in writing, and THEN talk financing options.

Remember this: the “cash-in-hand” thing is a myth. You can use dealer financing as an incentive with the dealer, because they get kick-backs from the financing company for securing the loan.

What do you mean by “fully depreciate”? One’s personal finances are not like a business’ where capital expenditures are depreciated over some number of years. From a personal point of view, I cannot understand what “fully depreciated” means other than “until worthless”. Even then, paying $30k for a new car and driving until worthless is a more costly venture than buying used for $20k and driving until worthless.

I think it depends on the car. As I said above, when I bought my Honda Accord as a two-year old used vehicle, my perception was that the discount was minor (although I don’t have numbers). Were I doing it all over again, I would have bought a new car instead, and so that’s what I’ll do next time.

By “fully depreciate” in this case, we mean use the car until it’s value is only residual. Say 7-8 years.
Sure and buying a car for $1000 and driving until worthless can be even cheaper.

But 1 yo used car is not 2/3rd of the price of a new car. More like 7/8th. Assuming buying from a dealer, mind you. So, it is more like paying $27000 for a used car and getting seven years instead of 8, or one less year of driving.

Exactly, on those kinds of cars, the discount is small.

I went to Edmunds.com and searched for cars $25k - $30k. The first one I looked up was a Chevvy Malibu LTZ. Price for the 2010 new: $27k. Price for a 2009: $19,600. That is $27% depreciation in one year. Thereafter, depreciation was more like the 1/8th you mention, but that first year is a huge hit.

No doubt the German & Japanese cars fare better, but I suspect you will struggle to find one eighth depreciation. I checked out the Honda Accord. The EX-L costs $26,800 new, so very similar to the Malibu. The 2009 model is $21,300 - 21% depreciation.

This is because Honda’s have inflated resell values.

It’s as expensive to buy a same-model year Honda as it is to buy a New Honda.

Now, I’m going to give you advice from the side of someone who has been in the car business his entire life, literally, and still is.
First, Toyota is offering 0% not 0% of $2000. This is because $2000 in cash diminishes resell value, not that that fact is particularly relevant to this conversation. That means that it’s not 0% at the expense of other deals. Toyota only offers cash incentives to recent graduates (+/- 6 months from graduation date) of College.

Second, as has been said before – Negotiate based on Price of the car first.
As a tip, MSRP is nothing close to invoice on a car. In fact, don’t even trust the Invoice if the dealer shows it to you, he pays 3% less than that (this is called “holdback”) unless he purchases it from a Broker.

If you want the best possible price on a car, your first step is emailing every single local dealership of that brand and say the following, quite simply.

I’m in the market for a new XXX vehicle. I want YYY feature package. Quote me your best price. Include all possible incentives, whether to the dealer or to the customer. I’d like an out the door cost, so include Documentation, Licensing and Title fees. I have no need for any additions to the car, I’d like it as it comes from the factory, with no after market equipment.

If your price is suitable, I will be in for delivery within the next 48 hours.

Use that as your email, and you’ll get responses, most of the first responses (if they’re following proper procedures) will be along the lines of “We don’t quote prices online, but come on in and we’ll talk…”

Reply to that with:

Quote me a price on XXX, with feature package YYY and I will be in for delivery if it’s suitable. If it is not, or you do not wish to quote a price, our discussions are over.

Chances are, one of the dealerships will quote you a price at, or just above invoice. They’ll give it all away if you start up front stating exactly what you want. Once you have your price, you have all the power, because you can phone the local dealerships and ask them if they want to beat it or not. Sometimes, one will, sometimes not.

Using the above method, you’re a complete pain in the ass for people like me. It’s my job to get you to pay full MSRP for a car, and take all of the addendum packages (nitrogen filled wheels, running boards, mud guards, etc) with a happy smile.

I never lie, and I never obfuscate the truth. I just reenforce the fact that you don’t like your old car, and you really like your new car (it’s already yours, you said you loved it.), so there’s really no need to worry about all the extra stuff we’re giving you in the price. I mean, you do want your paint to be in good condition in a year, not all scratched up from rocks, right?

I don’t get why I’m a pain in the ass if I follow the above. You made a sale. Made it quickly. Didn’t spend a lot of time on it. You were able to move on to someone else. You didn’t maximize -your- profit on that single sale, but you have a contented customer that will tell others and will probably come back again themselves (unless the service dept screws it up)

You’re not an active pain, more of an annoyance.

But, in reality, I don’t have a problem with that because I’m fine with getting my unit bonuses higher. There’s a reason that I outsold all of the other salesman when I worked the floor. I wasn’t afraid to take small deals, if the money wasn’t there to make.
Sales payplans, at good stores, typically work off of a percentage that bumps as you sell more cars. So you might get 10% F/B (Front and Back, front is how much above cost and pack – pack is how much the dealership marks it up on their books, so they don’t have to pay commission on it – back is finance) at or below 10 cars, 15% from 11-15 cars, 20% from 16-20 cars and 25% at 20 cars or above (that’s actually a really weird payplan, but you get the idea).

Keep in mind, that’s not 10-15-20-25% of the cost of the car, that’s of the profit on the car (above built-in expenses).
I got the big grosses out of customers, when I could… but when I couldn’t, I wouldn’t let the managers pass on minis.
ETA: And I was all over incoming phone and emails, and I’d take crap deals that didn’t require work, just for the reasons you mentioned. It was beneficial to me and the dealership. Dealerships wont tell you this, but based on the number of cars they sell, they get more cash per car from the factory.

That means if they’re 1 car away from their tier bonus, it pays for them to lose money selling you a car. at 40 Accords in a month, they might get 200 Dealer Cash per accord, at 41, they might get 300.

Eh? Lowest deprecation I could find was 5% on Honda Accord, assuming excellent condition & not driven. Any deviation and it was 10%. If you meant that there are some used cars that are worth nearly as much as their new counterpart – yes, I’ll grant that is true – but it’s not the rule. 2009 Ford Focus, excellent condition and 10K miles, $12,205; 2010 Ford Focus, new, $17,895.00. That’s jaw-dropping. YMMV.

Sure, cars are worth less after you drive them off the lot. No doubt. But if you buy a 1 yo used car, you also have one less year of usage by you. The old CW used to be that the price dropped by 25% when it drove off, so losing that year was not a big deal. Now, you lose about about a years worth- more for some cars, less for other. Generally a tad more, but then you have the risks in buying used.

According to Edmunds, on average, people are paying just over invoice for that car. Then there is a $3000 incentive, making the new, out the door price $23,700 including destination. That would be about 17% depreciation, assuming you pay retail for both cars. To me the best year of a cars life and the uncertainty of how the car has been treated for that year is worth more than 17%.

Not sure if the link depends on my browser – http://www.edmunds.com/new/2010/chevrolet/malibu/101184446/optionsresults.html?action=2

Whenever I look at used cars it seems like new is a better deal. For example - a 2004 (6 year old, top of the line model) mazda3 goes for over $10,000. A new mazda3 (with the same options) is under $22,000 out the door. And the new car is a redesigned model with more features/improvements. It seems like a car should cost much less than ~50% of it’s value after having the first and best 6 years of it’s warranted life used up.