Reader question:
I’m buying a new car, and I’ve heard that zero percent financing isn’t as great a deal as it seems to be. Is that true?
Flor
Yes, it is.
Zero percent financing can be a good thing, but most of the time it’s just one of those things in the auto industry that’s used to make you settle for a bad deal while thinking you got something good. It’s a bad ploy that salespeople and dealerships use, and it’s easy to fall for, considering that interest is what usually adds a lot of the price to a car over the years that you’re paying for it. However, it can be avoided by paying close attention.
First of all, your credit has to be pretty much perfect to qualify for one of these deals, even though it won’t be helping you that much. Most importantly, zero percent financing deals generally require that the car be paid off in about three years–sometimes even less. So, guess what that means? High monthly payments, which someone with good credit should be able to avoid. For a twenty thousand dollar car, you would have to pay almost six hundred dollars a month. Imagine if the car were more expensive.
Then there’s the down payment. If you accept an offer for zero percent financing, your down payment will often have to be huge. How huge? It depends, but the amount usually tends to be around twenty five percent, unlike normal financing plans which charge ten percent. So, if you want to get zero percent financing be ready to have a lot of money up front.
It’s true that, in total, you are saving money with zero percent financing. However, it isn’t something that you should jump into. Draw up your budget and see what you can afford. If those six hundred dollars a month payments are well within your range, it might actually be worth it.
Cheers,
Fashun Guadarrama.