Zero Percent Auto Loans: Right For You? Three Things You Need To Know
Is the siren song of zero percent financing luring you back into vehicle showrooms? It brought back Toyota buyers, who had shunned the brand after widespread recalls. According to the New York Times, "Toyota, whose United States sales had fallen 12 percent in January and February after it recalled more than eight million vehicles worldwide, reported March sales rose 41 percent compared with those in the month a year earlier." Sales at other car makers also rose sharply.
But before you automatically assume zero percent financing is a better deal than a car loan from the credit union, consider these three things:
1. You may not be eligible.
[AD]It's a tried, but true, saying: What the big print promises, the small print taketh away. The footnote advising that "Not all buyers will qualify" and "Subject to credit approval" means that the zero or extreme low financing rate is reserved for people with a good credit score. What does that mean to you? According to myfico.com, there is no single "score cutoff" used by all lenders so it's hard to say what a "good" credit score means outside the context of the lending situation and that "one auto lender may offer lower interest rates to people with FICO scores above 680 while another auto lender may use 720." Developed by the Fair Isaac Corporation, a FICO score is the most widely used credit scoring system and according to its publication Understanding Your FICO Score, roughly 42 percent of consumers nationwide have scores of 699 or less.
2. You may pay more for the vehicle.
If you arrive in the showroom and announce you want the zero percent financing, you may get it, but you may also put yourself in a poorer negotiating position for the total vehicle cost. Conversely, if you are pre-approved for a loan at the credit union, keep that close to the vest as well. How you plan to pay for the car should be the last thing you disclose, not the first. As always, do your homework at sites such as edmunds.com or kbb.com so that you can negotiate knowledgeably.
3. Your choices may be limited.
If you never wear brown, but you find a brown suit at a super sale, would you buy it anyway because "it's such a great deal"? If so, does it make you feel uncomfortable each time you put it on and you decide to just put it back in your closet? If you settle for a car -- buying it only because "it's such a great deal" -- you probably don't have the option of leaving it in the garage. The super sales on financing are often limited to a specific group of vehicles, typically the slow sellers. A vehicle is a big purchase; make sure that you don't want to leave it in the garage.
Bottom line: Car dealers want to sell cars and they don't want to leave any money on the table. Even if the zero percent financing seems right for you, stop by your credit union to make sure you are getting the deal that's right for you.
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