Are Car Loans at 0% Always as Good as They Seem?

The 0% car loan offers do seem too good to be true. There are several things to be aware of prior to applying for a car loan which includes this enticing feature.

Spending Habits: One aspect of these loans that can creep up on you is that it can influence how much you will spend. For example, if you had planned to purchase a vehicle for $15,000 but after seeing the 0% deal, you decide you can afford a car that costs $20,000, the 0% deal is not going to be an advantage for you.

Choices: Sometimes there is a choice between taking a 0% interest rate or a $2,000 rebate, for instance. If you take the $2,000 rebate, you are paying interest on $23,000. If you buy the car for no interest at $25,000, you effectively paid $2,000 interest up front. Now, this may still be a good deal but the reality is that you are still paying interest.

Qualifying: To quality for a no interest loan, you need to have gilt edged credit—probably a credit score over 720 (850 is considered the highest). About 60% of people have credit scores of 700 or above.

Loan Term Length: Most of these deals require the loan to be repaid within a very short period of time—usually 24 to 36 months. The monthly payment may put a strain on your budget.

Price: Often, when negotiating this type of loan deal, you will find the dealer is very inflexible on price. That’s because they are not making any money on financing.

Like any other offer that appears to be the deal of a lifetime, the lender will make sure their profit is made somewhere in the transaction.