0% Financing Can Cost You Money

Nowadays people are holding onto their cars longer and longer but at some point it becomes more expensive to keep repairing them rather than biting the bullet and just buying a new (or used) one.  Just ask my husband who spent months paying close to $1,000 a month to keep his 2003 car alive rather than just finance a new or used one paying only $200-$300/month…lesson learned.

This seems to be the time of year when the dealers LOVE to lure in with their 0% offers. It’s usually a 0% financing (and usually for a short term like 36 months) OR cash back type offer and IF you qualify for 0% you have to make the decision to take the 0% rate OR the rebate amount.  That 0% may look mighty appealing, BUT if you look at the big picture taking the 0% over the rebate actually can COST you more money in the long run. Let’s take a real simple example – you find the perfect car and negotiate the price to be $20,000. There is a manufacturer rebate of $2,500 OR 0% offered AND you qualify (congratulations you must have pretty good credit).  You also have a trade-in valued at $1,000 and you even have an extra $500 to put down.  For simplicity sake we’ll keep the term the same – 36 months, here’s how it breaks down:

	0% Dealer financing	Credit Union financing
Price of car	$20,000	$20,000
Down payment	$500	$500
Trade-in	$1,000	$1,000
Manufacturer rebate	$0	$2,500
Amount financed	$18,500	$16,000
Number of months in loan	36	36
Loan interest rate	0%	3.00%
Monthly Payment	$514	$465
Total cost	$18,500	$16,751
Total interest paid	$0	$751
SAVINGS	$0	$1,749

Not only are you saving money every month on your payments, but you end up paying nearly $2,000 LESS than if you took the 0% financing offered through the dealership.

The best way to handle your options to make sure you’re getting the best deal is to research your options. Get pre-approved at the credit union BEFORE walking into the dealership so you are armed with the power of knowing exactly what you can afford and how much it will cost in the long run.  Remember TropicalFinancial Credit Union is here for your best interest – it’s part of our mission to put people first so you feel Right Where You Belong!

^Amy