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Zero Percent Auto Loan Financing

Posted September 19, 2012 in Advice Column, Downtown

Many auto dealers offer zero percent financing, typically for a 24- to 60- month term, which sounds like a great deal.

However, just like Mom always said, “If it sounds too good to be true, it just might be.” While there are situations when zero percent financing from an auto dealer is a good deal, it’s important to investigate the offer carefully and do your homework before you step on to the dealer’s lot.

First, it’s important to understand human nature. Buying a new vehicle is less often based on economics, and more often based on emotion — how you’ll “feel” or “look” in that new vehicle or possibly the problems it will solve for you. Zero percent loan offers are intended to soothe the “economic” side of you so that new vehicle can appeal to the “emotional” side of you. Unfortunately, according to CNW Marketing Research, less than 10 percent of consumers who are drawn to a dealership by a zero percent offer actually qualify for zero percent financing, but by the time you realize you don’t qualify, your emotional side may conquer all. So what’s a consumer to do?

Below is a list of zero percent financing “myths” and “truths” that will give you some tools you need to identify the good and bad points of any zero percent offer:
Myth: With zero percent financing, I’m guaranteed to get the best price.
  Truth: The price of the vehicle may be inflated to make up for lost finance charges. A reputable dealer will allow you to negotiate the best possible deal before the zero percent.
 Myth: Zero percent is available for the car I want.
   Truth: With zero percent, your choice of vehicle options may be greatly limited. Usually the most popular vehicles and new models are not available with zero percent financing.
Myth: I can use the cash rebate and zero percent financing to save more money.
Truth: Typically you will be required to choose between a cash rebate and zero percent financing, not both. Be sure to calculate the cost difference between zero percent financing and taking the rebate money while financing with your bank or credit union.

One final piece of advice to consider before you step on the dealer lot is that while you may feel like taking a sigh of relief after you’ve negotiated a great price for your new vehicle, this is not the time to let your guard down.  Auto dealers make the majority of their money after the negotiation process, on auxiliary services such as Guaranteed Asset Protection (GAP) and Extended Warranty coverage. The cost of all these services should be investigated ahead of time because they can vary greatly by lender.

Information from and CNW Marketing Research, provided by Debbie Whittie, CEO of Village Credit Union, 601 E. Court Ave., 243-4400.

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