Are 0% Auto Loans a Good Deal?
With all the advertising that’s out there regarding 0% financing for auto loans, you must be wondering – what’s the catch? This week we spent some time discussing 0% financing with Emily Hamilton, our VP of Consumer Lending.
Chris: 0% financing sounds too good to be true. What do auto buyers need to know?
Emily: There are a few things hiding in the fine print that are worth consideration. To be approved for 0% financing, you will need spectacular credit and it’s typically only offered on new models. It’s also really difficult to negotiate the cost of your vehicle, and the price of your trade-in.
Chris: You are saying not everyone gets the 0% interest deal?
Emily: Correct. Not everyone will qualify for 0% loans. Auto dealers are looking for people with perfect credit, who want to buy the latest and greatest vehicles.
Chris: How can dealers offer 0% financing?
Emily: The dealer is actually offering you options for your vehicle purchase. You can either pay a 0% interest rate, OR take a sizeable rebate and finance the vehicle traditionally. If you take the 0% rate, you’re missing out on the rebate and paying more for the vehicle. This is how the dealer makes up the difference, so it’s not really 0% financing.
Chris: What do you mean? 0% is not really 0%?
Emily: Ultimately, you pay more for the vehicle financed, because you aren’t getting the rebate. It’s kind of like paying your interest up front.
Chris: Can you go into more detail?
Emily: It’s worth doing the math to find out which is the better deal. We had a member recently purchase a $30,000 vehicle. If she took 0%, she would lose out on a $4,500 rebate and pay $30,000 in total for the vehicle.
If she took out her loan with us, she would pay $3,000 in interest on that loan, so a total of $33,000 for that vehicle. Because she was able to take advantage of the $4500 rebate to put towards her loan, she only ended up paying $28,500 for that vehicle.
By financing with Atlantic, she was able to save $1,500. This is all assuming she doesn’t pay the loan off early, which would result in additional savings. So we were able to offer her a cheaper option, and give her the local servicing she deserved.
Chris: Could a 0% interest deal be a good deal?
Emily: You really have to do the math to find out. We encourage our members to use our Auto Loan Calculator. Dealers are really good at keeping your attention on the flashy 0%, but by slowing down the process and reviewing all the different financing options you will find the loan that fits your budget.
Chris: What else does an auto buyer need to know?
Emily: If you are trying to find the best deal to meet your needs, then it helps to have someone else in your corner. At Atlantic, we truly believe in helping our members make the best financial decision for them. Sometimes it’s not always financing with us. It’s really about having all the information to make the right decision.
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