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Zero Percent Financing Is Not Always the Answer For Auto Loans

Savings Can Be Better With Rebates and Low Interest New Car Loans


When youíre shopping for a car that youíll be financing with a car loan, the prospect of receiving zero percent financing is often too good to pass up. Or is it? Itís important to evaluate all of the factors that affect the total price you end up paying, so you always end up with the best possible deal and the most favorable terms on your auto loan.

The Zero Percent Hook

In many cases, 0% financing is a hook to bring in more potential customers and car buyers, without actually offering them the best deal. When you agree to 0% financing on your used or new car loan, youíre typically exchanging that interest rate for other potential favorable terms, such as large manufacturer rebates and incentives, which are intended to decrease the total price.

Consumers can actually save more by forgoing the 0% auto loan from the dealer, and getting private financing that enables them to capitalize on those rebates. Ultimately though, what will make it worthwhile for you will be the interest rate you get on your car loan, and the size of the rebate available.

When Rebates Are Better than 0% Financing

The easiest way to figure this out is to do some basic math. The numbers may be different for whatever new or used car loans youíre considering, however, you can plug them into the equation to obtain the direct comparison you need.

If you get 0% dealer financing on an auto loan on a $20,000 car, youíre financing that total figure. If you make 60 monthly payments, your monthly payment would be approximately $333.34.

On the other hand, letís say you obtain a favorable 1.99% interest rate on your car loan through a credit union or bank. Now, youíre able to capitalize on that manufacturer rebate.

For the sake of example, letís say the rebate is $4,000, which brings down the total youíre financing to $16,000. Over the same loan period, youíre now paying just $280.40 per month, including interest. That provides you with a direct month-to-month savings of about $53, which translates to nearly $3,200 over the life of that loan.

Sometimes, things that appear too good to be true are indeed just that. Before you jump the gun and sign up for 0% dealer financing, speak with a community bank or credit union to see what types of interest rates theyíre offering and what you would qualify for. You can literally save thousands of dollars on your auto loan by forgoing the nifty 0% financing hook.

BFG Federal Credit Union works with consumers throughout Ohio, including Akron, Cuyahoga Falls, Stow, Hudson and Twinsburg, helping them to receive the best possible deals on their auto loans, thanks to having the correct information and the complete picture right from the start. Need help working through the best options for your next auto loan? Let us know.


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