Vantage Point

What Does 0% Really Cost?

You’re in the market for a new car. Whether by choice or by necessity, you now face decisions beyond which color you’d prefer. Sure, in a perfect world, money would be no object. However, for many, the first step in the car-buying process is determining how much you can afford to spend.

Step 1 – What Can I Afford?
A new vehicle is a major financial commitment. Don’t act impulsively. Do your homework. There are several online calculators available that can help you determine your monthly car loan payment or your car purchase price. By using the calculator, you can see how different loan terms or down payments can impact your monthly payment.

Don’t forget, there are additional costs associated with vehicle ownership to consider beyond your loan payment. According to the American Automobile Association (AAA), the average cost of owning and operating a vehicle is around $8,500 a year.

In addition to your loan payment, you’ll need to factor in auto insurance, gas, maintenance, license plate renewal fees and other associated expenses. As you’ll see, the numbers can add up quickly if you’re not fully prepared.

Step 2 – Finance Your Purchase
So, you’ve done your homework. You know how much you can afford. One of the biggest challenges in the car-buying process is next. Now’s the time to figure out how to finance your purchase.

The incentives are everywhere. No money down at this dealership. Thousands back in rebates at this dealership. 0% financing at this dealership. A 0% interest loan sounds like the way to go. Or, is it? While it may sound enticing, according to Edmunds, only about 9 percent of the dealer-financed car loans in 2015 were 0% car loans.

What should you keep in mind about 0% financing?

  • Term restrictions may apply, resulting in higher payments
  • Credit restrictions may apply
  • Availability may be limited to certain vehicle models in the dealer’s stock
  • Negotiating power may be compromised

0% vs. Other Incentives
Also, it’s important to note that often only one incentive may be used. For example, when considering either 0% financing or a cash rebate, you may be asked to choose between the two.

Make sure you do the math! You may find that your monthly payments will be lower by taking the rebate and financing a lower amount at a competitive rate. Our rebate vs low-interest financing calculator can help you determine the best option for you.

You’ve done your due diligence. There’s nothing left to do but go shopping!

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