Beware of 0% Finance Offers
0% p.a finance offers are being made by many car dealers these days, and you might be wondering how they can do this while still making money. Does the interest just disappear? Are the car companies offering this out of the goodness of their hearts? Or are they secretly and subtly making the consumer pay in other ways?
Well the 0% finance offer does sound too good to be true, so it can be reasonable to ask all these questions. The truth is that sometimes these deals are not everything they are cracked up to be. By offering such a finance rate there has to be concessions made elsewhere, some of the main ways car dealers cover their costs are explained below.
0% finance offers explained
When car dealers make these 0% finance offers, the interest does not simply disappear. Usually, the car dealer will pay the interest on the loan from the profits they will make by selling you the car. This means that it is important to get as big a margin as they can when they sell the car to you. Your negotiating powers will therefore be diminished quite significantly when it comes to haggling on price.
It will affect both the price of the car you are buying, and your trade in valuation. There will be less room to move to bring the price down on the new car, and you will also probably be offered a very low price for your trade in vehicle. It is a good idea to research before you go into enquire about these 0% finance offers, in regards to the valuation of your trade in, so you will know if you are getting a fair price for your car.
Also ask around other car yards as to how much the price of the new vehicle you are purchasing could be if you were to simply pay cash or finance the car by other means, instead of the 0% finance offer. If you research both these things, you will be able to see the difference in the deals you'll be offered, and be able to weigh up whether or not the 0% finance option works out well for you.
Approvals for these loans may also be harder to achieve, as there are usually extra conditions and requirements to be met. The most common are things such as large deposits required or balloon payments at the end of the loan. The term of these loans are usually only 3 or 4 years, as opposed to 5 or 7 year terms which are commonly available. Due to the shorter terms, the repayments per month may be higher, and thus some people will not be able to afford these payments.
If you are not approved to receive this 0% finance deal, the lender will probably go through all their other options, such as regular finance, and you may therefore be no better off than if you went anywhere else.
Overall it is a good idea to do some research on your car loan options before you go into these dealers, so if this non-approval does happen, you don't have to accept their other offers, which can sometimes be higher than other car loan providers and banks.
MoneyBuddy offers a car loan comparison tool, which you can use to compare some car loans available to you. We don't have evry product or every feature to compare, but there are a lot of car loans to browse through!