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Article: 0% Car Loans...Really Worth It?
I pulled this article from my bank's (USAA) website. Just wanted to share.
Is 0% financing on your new car really such a great deal?
By Brad Van Alstyne
It's become very popular for car dealerships to offer 0% financing to make a sale. Many buyers assume this is a great deal. However, if you do the math, you may figure out that it may be a better deal for the dealer than it is for you.
To get 0% financing at the dealership, you usually have to waive any rebates the manufacturer is offering up as an incentive. These rebates could total anywhere from $500 to $5,000 depending on the vehicle. Meanwhile, you pay full sticker price for the car and the dealer keeps the rebate money. You end up paying more for the car and let them reap the reward.
Which is better: the no-interest loan or $4,000 cash back?
Let's look at a scenario where you buy a $20,000 car with incentives of either $4,000 cash back or 0% financing:
- $20,000 for 5 years at 0% with no cash-back rebates means you'll pay $20,000 for the car over the lifetime of the loan.
- $20,000 minus $4,000 in cash-back rebates is $16,000 which, financed for five years at a typical car loan rate of 6%, means you'll pay a total of $18,559.20 for the car. That's a savings of $1,440.
How You Can Save Even More
Here's what is really important about this scenario. You will save $24 per month on your monthly payment if you take the rebates and get a traditional loan.
And if you put that $24 savings to work for you every month with an average 6% rate of return, this money could grow to $1,674. When you add that to the $1,440 you didn't pay in finance charges, you've netted $3,114 in your pocket. That's how you get ahead in life.
Be Prepared Before You Go to the Dealership
So, next time you go to buy a car, get pre-approved for a traditional auto loan before you shop.
Then, when you're at the dealer, discuss the options and bring your calculator to figure out the best deal for you. It all depends on the loan you can get and the amount of the rebate the dealer is offering.
Re: Article: 0% Car Loans...Really Worth It?
I know. My bank is quoting at 1.49% for 36 months if you use their car-buying service.