• 0% Auto Loans: Advantages and Disadvantages

    The only thing better than buying a new car is securing financial assistance from a list of 0% auto loans. Car dealers are offering incentives that sound almost too good to be true, and in some instances, they are. While that’s not always the case, car shoppers need to do their homework before accepting a zero interest loan. Some consumers will find there are good reasons for skipping the no interest loan and choosing a low rate car loan instead, but each loan has advantages and disadvantages.
    Advantages Zero percent auto loans are usually reserved for buyers with very good to excellent credit, ranging from a 700 to 750 FICO score. The average American has a score closer to 678 through 690. Those few points don’t seem like much but they can be just enough to disqualify many from acquiring 0 auto loans.

    The offer of zero financing is often limited to a select vehicles. Often the slow movers or the very high priced. The offer may be restricted to only cars currently on the lot; not special orders for a favorite color or other coveted specifications. Car shoppers may find that the vehicle they were looking for is not in the choice of vehicles offered.

    The zero percent offer is usually either/or…either a rebate or the zero financing but not both.

    The 0 auto loan is usually for a shorter term–often 36 months–meaning higher payments. A 60-month low rate car loan equals lower payments. Consider the difference on a $20,000 car. A 0% auto loan for 36 months means a payment of $556. If the offered rebate was $3,000 and the low interest loan was for 60 months at 7 percent, the payment on the financed $17,000 would be $337, over $200 less a month. The interest over the term of the loan would eventually eat up the amount of the rebate and bring the total amount paid to almost the same, but if lower monthly payments are the object, the low rate loan is the way to go.

    Read the fine print. Some zero percent loan agreements state that if a payment is late, the rate increases.

    There is an upside to 0% auto loans. Every penny of the payment goes to principal and the shorter 36-month loan means the car is paid off at least two years earlier than a 60-month low rate auto loan.

    For consumers who don’t have to worry about the amount of the monthly car payment, those are good reasons to consider a zero percent auto loan; but most consumers won’t fall into that category. The car shopper with an average credit score needs to shop around for the best car loan lender and the lowest APR. The wise car shopper will find out the current car loan interest rate and compare rebate and low interest rate car loans versus 0% auto loans and do the numbers. Being informed can take the unpleasant surprises out of car buying and smooth the entire process.