| In recent years, zero percent financing has | | | | How Does It Work? |
| become an increasingly popular financing option | | | | While it is somewhat understandable how financing |
| offered by most car manufacturers on new cars | | | | incentives offered by auto manufacturers work, |
| and trucks. While it does sound great and is | | | | zero percent financing offered solely by a dealer |
| extremely appealing to many car buyers, there | | | | may raise your eyebrows. Obviously, banks are |
| are few things attached to it that may diminish | | | | not going to finance you at no interest, no matter |
| the benefits. | | | | how good your credit is, since they have to make |
| Commonly, car dealers offer an alternative of a | | | | money off you to stay in business. |
| zero percent financing or a cash rebate on the | | | | What usually happens is that auto dealers rebate |
| vehicle purchase price. Let us say, that you are | | | | the bank upfront for the interest charges that a |
| confronted with an offer of getting a cash rebate | | | | customer would accrue and pay to the bank |
| of $3,000 or a zero percent financing. While you | | | | otherwise. In simple terms, your dealer pays your |
| are going to have no interest to pay, you will end | | | | interest for you. Since they are not going to |
| up paying $3,000 more for a vehicle that you | | | | make it a money-losing proposition, they have to |
| may have saved otherwise. Should you pay off | | | | compensate these expenses somehow. That is |
| your loan early, the advantage of taking zero | | | | why these costs are built into the vehicle |
| percent financing would become null. | | | | purchase price. |
| It is important to keep in mind that any car is a | | | | Typically they are offset by a rebate that a car |
| quickly depreciating asset. Taking a rebate instead | | | | manufacturer would give you on a new car |
| of a zero percent financing incentive may help | | | | purchase and/or an incentive that an automaker |
| you to reduce the gap between the loan balance | | | | gives a dealer for higher volume sales. What this |
| and the vehicle fair market value. Since your car | | | | also means to you that there is less negotiation |
| depreciates most in the first year of use, having | | | | power on your side, since a dealer would be less |
| it totaled or stolen may leave you upside down | | | | eager to go down on a vehicle price in this case. |
| on your zero percent auto loan since your | | | | Financing Incentive or a Cash Rebate? |
| insurance company would not cover extra $3,000 | | | | What this means to you is that a simple |
| you paid for your vehicle. That means that you | | | | mathematical equation needs to be solved. When |
| would have to come up with the difference to | | | | approached with a choice between the rebate and |
| cover the remaining loan balance. | | | | a zero percent financing, calculate how much |
| It is important to remember that nothing is truly | | | | interest you would normally pay on a car loan and |
| free in this life. Financing incentives, typically | | | | compare it to the amount of rebate. If your |
| coming from the corporate offices of car | | | | interest charges are going to be greater, it may |
| manufacturers, are most commonly hidden in the | | | | be time to consider zero percent financing. Should |
| vehicle selling price. Car dealers, sometimes | | | | they be not, take the rebate and run away from |
| offering zero percent financing on their own, | | | | the zero interest deal! |
| follow the same strategy. | | | | |