The Truth About 0% Financing
We've all seen the ads. Tempting, aren't they? But before you start thinking this is the perfect way to finance a new vehicle, take a closer look at the details. As the saying goes, if it sounds too good to be true, it probably is.
Understanding The Motives
Automobile companies offer 0% financing for one reason: they are desperate to sell a car! Sales are sluggish, inventory on the lot is aging, and factory production must be scaled back - which could mean layoffs. No one wants that! Hence the "perfect" offer - 0% financing!
Beware The Pitfalls
-
Qualifying. Read the fine print. In order to qualify for this low rate, you must have a perfect credit history - no history of late payments, defaults, or an excessive amount of outstanding credit. You may also be required to make a large down payment.
-
The Term. The loan term may be extremely low at 24 months. This results in a significantly higher monthly payment since the vehicle must be paid off entirely within the loan term.
-
Default Rate. If you fail to make a payment on time for any reason, the interest will accrue at 19% APR (Annual Percentage Rate) retroactive back to the initial date of the loan.
-
Fees. Many times there are "origination" and other fees to obtain 0% financing, and there are penalties for paying off the loan early. There are no such fees or penalties for Commonwealth Credit Union vehicle loans.
-
Higher Cost. Since the automobile company isn't making any money on interest, they must make up the difference by raising the sticker price. You will end up paying full MSRP sticker price - or more! It also means no haggling over the price. You are also not eligible to take advantage of dealer rebate - which usually leads to a lower payment even if you finance at a higher interest rate.
Do The Math
The following table shows that 0% financing will actually end up costing you more.
Auto Dealer Financing 0% APR For 36 Months* |
Commonwealth Credit Union Financing 6.0% APR For 60 Months* |
|
| Vehicle Selling Price | $20,000 |
$20,000 |
| Manufacturer Rebate | 0 |
3,000 |
| Amount Financed | 20,000 |
17,000 |
| Interest | 0 |
2,763 |
| Total Cost | 20,000 |
19,763 |
| Monthly Payment | 556.00 |
330.00 |
You save $226 each month by financing through your credit union!
*This example is for illustrative purposes only. Current rates may be lower or higher. Commonwealth Credit Union rate payment estimate based on 5.00% Annual Percentage Rate (APR) for 60 months with no down payment.
Keep in mind your total financial budget when you select the financing for your next new vehicle. If you're only basing your decision on advertised interest rates, you may be cheating yourself out of the best deal!
For more information on finding the best option for your next vehicle loan, contact one of our helpful Financial Service Representatives at 800.228.6420 or 502.564.4775, or simply notify us by e-mail.
