Zero Percent Car Loan: If you are planning on financing a new car purchase, what could be any better than zero percent financing? That means paying zero interest on a new car loan for up to 72 months. But before you get ahead of yourself, there are a couple of things to keep in mind.
First, not everyone can qualify for zero percent financing – as a matter of fact, very few people do. Paying no interest on a new car loan may sound like it’s almost impossible. But it is possible for people with a very strong credit. And it’s something you should really consider, because through out the period of the loan it can save you hundreds of dollars.
What are the benefits of getting a Zero Percent finance deal?
The advantages will vary for every customer but not having to pay an APR can offer huge savings for anyone. Even if you have had a low-interest rate deal in past times, you can still expect to save up to hundreds of pounds in a year.
A zero percent contract is usually quite a short contract, so you are likely to be paying bigger monthly instalments but for a shorter time. You can pay off your loan much more quickly than you would otherwise so that in just a few short years that car will be completely yours.
How Do I Qualify for Zero Percent Financing?
Before you go running down to the car dealer, you need to know who will actually qualify for a zero percent financing. Zero percent loans are usually kept for the most creditworthy buyers.
The fine print on automaker websites usually says things like “for qualified buyers” or “based on Tier One credit.” The language does not really spell out what that means in terms of FICO scores.
And the range itself can vary between automakers, so it is a good idea to call the dealership for the car you’re considering to determine the requirements.
If your score is a little lower, zero percent offers are still worth looking into. There have been cases of people, despite having a lower credit score, getting approved because of the solid history of making payments on time and loyalty to a car brand.
What About Bonus Cash Instead of Zero Percent Financing?
There are times when the automaker gives shoppers a choice between getting bonus cash or a loan with a very low interest rate. Bonus cash would usually be the best way to go, but when it comes to zero percent loans, the cash has to be sufficient to offset the finance charges the buyer is saving.
For Instance, let’s say you were buying a $30,000 car with a $3,000 down payment and you have qualified for a loan with an interest rate of 5 percent.
You then have a choice: a bonus cash incentive or a zero percent loan with no added discount. It would take an incentive of at least $3,575 to beat the zero percent loan offer. Any amount of bonus cash that is less than that makes the zero percent loan the better option.
Zero Percent Do’s
Make sure you really want the car. Just because a car has a zero percent loan offer doesn’t mean it is the right choice for you. Make sure you test-drive it to be sure it fits into your needs.
Get preapproved for a car loan. It is a good idea to secure financing with your bank or credit union before you go car shopping. This preapproval might serve as a backup loan in case you don’t qualify for a zero percent offer.
It’s also useful to have a loan handy so you can compare its interest rate to the dealership’s financing. You might decide that the combination of your bank loan and dealership’s bonus cash offer makes more sense for you.
Zero Percent Don’ts
Don’t skimp on the down payment. Some dealers may give you the option to put nothing down at signing. We recommend you put down 20 percent, or as close as you can get to that figure, to offset depreciation. If you can’t manage that, see if your insurance company offers new-car replacement insurance. If it doesn’t, consider getting gap insurance.
Don’t take out a loan for more than 60 months. Some automakers offer 72-month loan to help make the payments lower, but there are many drawbacks to taking out a longer loan. The car’s value will have greatly diminished by the time you finish paying for it. And there’s a good chance you’ll be tired of your 6-year-old car just about the time you make your last payment. A shorter loan means you can drive a car you still love, free of monthly payments.
Do not Buy More Car Than You Can Afford. Don’t buy more than you can afford. You will still have depreciation working against you. Getting a zero percent financing makes it tempting to spend extra money on accessories or a more expensive model. Avoid this temptation, because you will still have to contend with depreciation. So, you should also try to avoid financing your car longer than 60 months.