When
it comes to auto loans, a 0% interest rate is a head turner. But it's not
always the best deal.
Car
dealerships generally advertise 0% offers in the summer when they're looking to
make room in the showroom for newer models. The offers come from the financing
arms of the large auto manufacturers, who, unlike traditional lenders, profit
directly off the sale of the car and don't necessarily need the interest
revenue.
But
like any great deal—there's a catch. The New York Times reports that only about
10% of consumers actually qualify for 0% interest loans, which require pristine
credit—usually a FICO score of 720 or higher. And the loans typically are
reserved for a limited number of models and are not available if you're
shopping for a used car, which obviously tend to cost less than newer models.
These
0% loans often are paired with shorter-term loans, which cost you less overall
but mean a higher monthly payment.
Before
you head to the dealership, keep these points in mind:
Look at All Available Deals
Check
for other offers, such as cash back. If you can get a rebate—which lowers the
overall price of the car—paired with a low-interest loan, it may save you more
than the 0% financing. So be sure to crunch the numbers. You can find a number
of online calculators to help you, like this one.
Negotiate the Price
Before
you get to the interest rate, finalize a sale price and stick to it. Don't feel
pressured to accept expensive add-ons. Once the sale price is established, then
talk about financing.
Get Preapproved for a Loan at your Credit Union
Heading
to the dealership with a firm offer in hand will give you a point of comparison
and puts you in a stronger negotiating position. Credit unions, as
not-for-profit financial cooperatives, offer competitive rates. Come by any branch, or give us a call. We're happy to help!