When the summer rolls around, the challenge for many dealerships is to bring in customers distracted by the beach, out of vacation, or just generally not in the mood to shop for cars. So they go to the classic marketing strategy: The 0% loan. But is it worth it, and should you take one?
Starting At Zero
0% financing is pretty straightforward on the surface: You get a loan, and there’s no interest on that loan for a set period of time. The appeal is obvious; just like you buy a car, you buy a car loan, and the price you pay is the interest rate. So, really, the deal is, you get a free car loan. That’s pretty hard to turn down, for anybody.
That said, though, it’s trickier than you might think. As you may have already guessed for the fine print you can’t read in those TV ads, not everybody will qualify for the zero-percent loan. In fact, if you don’t have great credit, it might not even be worth stepping onto the lot; only the best credit will get the 0% loan. Getting that loan is made more complicated by the fact that the loan is usually originated by the finance arm of the dealership manufacturer. So, they set the standards, and often those standards are higher than banks or alternate lenders.
There are other drawbacks as well. These loans often come with very strict limits, such as short terms, which can drive up your overall monthly payments. The financing may not even extend for the entire length of the loan; in some cases, you only secure the financing for a year, and then your interest rate goes up.
It also comes with a host of limitations you may not expect: For example, it might apply only to certain models the dealership has in stock, and not to any custom orders or cars with certain options. Finally, there isn’t a lot of room to negotiate; they’re issuing the loan, they’re choosing the model, and thus the dealership is setting the price.
Despite all these roadblocks, however, 0% loans are more popular than ever. In fact, according to last month’s loan numbers, a tenth of all new car loans were made with 0% financing. So, is it right for you, and what else should you consider?
Zero To Hero
The reality is, if you can get a zero-percent financing offer from a dealership’s financing arm, you can get a great loan from almost any lender. If you’re considering a zero percent offer, take a moment and reach out to other lenders. You may, for example, be able to find a better term with an interest rate that’s higher, but a loan that’s less restrictive.
Keep in mind, too, that the ultimate goal of zero-percent financing is to benefit the dealership, not the customer. Ultimately, the idea is to get customers on the lot and to sell them cars, not give you the best possible deal on your purchase. If you’re looking for the loan that’s absolutely right for you, the truth is, you’re better off looking outside of a dealership, no matter what incentives they offer.