How You Can Do Better Than 0%
No interest auto loans aren't always the best deals.
When it comes to auto loans, a 0% interest rate is a head turner. You’d think you couldn’t do better than that, but it's not always the best deal.
Why would car dealerships offer 0%? Dealerships generally advertise 0% car loan offers in the summer when they're looking to make room for newer models. These offers come from the financing arms of the large auto manufacturers (e.g., GM Financing, Honda Financial Services, etc.) who, unlike traditional lenders, profit directly off the sale of the car and don't necessarily need the interest revenue.
There’s no such thing as a free lunch, or free car loan
Like any great deal—there's a catch. The New York Times* reports that only about 10% of consumers actually qualify for 0% interest loans, which require pristine credit—usually a FICO score of 720 or higher. And the loans typically are reserved for a limited number of models and are not available if you're shopping for a used car, which obviously tend to cost less than newer models.
These 0% loans often are paired with shorter-term loans, which cost you less overall but mean a higher monthly payment.
So, before you head to the dealership, keep these points in mind:
Get preapproved for a loan at Skyward
Heading to the dealership with a firm offer in hand will give you a point of comparison and puts you in a stronger negotiating position. As a not-for-profit financial cooperative, Skyward offers competitive rates and will work with you to secure your best loan options.
Look at all available deals
Check for other offers, such as cash back. If you can get a rebate—which lowers the overall price of the car—paired with a low-interest loan, it may save you more than the 0% financing. So be sure to crunch the numbers. You can find a number of online calculators to help you. And as a credit union member, Skyward is always available to sit down with you to discuss your best, financially sound choices.
Negotiate the price
Before you get to the interest rate, finalize a sale price and stick to it. Don't feel pressured to accept expensive add-ons. Once the sale price is established, then talk about financing.
* as reported in the New York Times, July 9, 2015.