 | Mark Kolarik is the President of the Kansas Teachers Community Credit Union, located in Pittsburg, KS, since 10-2002 and is a board member of the Kansas Corporate Credit Union located in Wichita, KS . He has been employed in the financial service industry for the last 31 years, having worked in several credit unions for 21years and 10 years in the banking industry. He holds a Bachelor of Business Administration degree from the University of Wisconsin-LaCrosse and is a Certificated Credit Union Executive. |
Banking & Finance
2011-11-21 12:05:23
Is 0% financing a good option?
Q: I am shopping for a new vehicle, should I take the 0% financing offered by the dealership?
A: More and more dealers are offering 0% financing, low rate loans, or cash-back rebates. While it’s nice to have choices, they can be down right confusing and expensive. In the final analysis, you may be better off with conventional auto financing from your credit union or bank.
Here’s why:
Regardless of which financing option you are interested in, a rebate vs. a low-rate auto loan, know the hidden costs in dealer financing options.
• Dealers 0% financing, low-rate loans, and rebates almost always are available only on slower-selling models. These vehicles often have lower resale values.
• Dealers 0% financing or low-rate loans can have bigger prepayment penalties and can require bigger down payments.
• Dealer financing plans usually are limited to dealer stock. That means you may have to sacrifice color, style, and/or options you want. Unwanted options can add 25% to 30% to the sticker price of your car.
• You could save money if you are one of the few eligible for 0% financing. Only buyers with “pristine” credit qualify. The auto manufactures define what they consider “pristine credit”. Consumers that do not qualify for the 0% rate are moved to higher rates.
• These offers usually are restricted to short-term loans such as 12 months or 36 months. With such short term loans, the monthly payments may be more than you can handle.
• You are unlikely to be able to negotiate the price of a vehicle and could end up paying more for a vehicle in order to get 0% financing. You also are less likely to get a good price on a trade-in.
• If you choose the dealer’s rebate plan, you forego the low interest rate loan, but you get a cash rebate. Adding the rebate to your down payment can make credit union or bank financing very attractive, because the larger down payment reduces the amount you need to finance.
Shop around for financing, just like you shop for a vehicle. Get preapproved at your credit union or bank before you shop for a vehicle. Ask the loan officer to help you evaluate which financing option is best for you.
