You may hear that the top car manufacturers like Toyota, Holden, Hyundai, Honda, Ford and Nissan all offer 0% interest deals, but be warned!
You may well end up paying more for your new car than if you had shopped around and (maybe even) financed your new wheels through an independent broker like Aussie Car Loans.
For most companies, this is a marketing offer that is designed to get you to act when normally you might not. In this case, the dealer wants to get you into their showroom and manufacturers want to sell more vehicles. These sorts of loans are usually facilitated by the manufacturer as normal lenders do not offer finance deals like this.
Why Shouldn’t I Take Advantage Of A 0% Car Loan?
Well, if car dealers are not charging interest on their finance deals, they have to make up the difference in other ways. In fact, there are lots of ways they can do this that you need to be aware of. Here are a couple of examples.
If you walk into the showroom and ask for the 0% car finance deal, the price of the vehicle can be inflated and is often not negotiable – you’re paying full retail. You can almost certainly negotiate a better price with the dealer if you’re not asking for the 0% finance option.
2. Trade In Value
If you’re trading in your old vehicle you’re likely to be offered a much lower price than if you weren’t opting for the 0% finance deal. Perhaps consider selling your vehicle privately instead if this is the case.
3. Loan Flexibility
The structure of the finance is also likely to be less flexible, such as the term of the deal, balloon payments, how often you make repayments and so forth.
There other disadvantages to 0% or 1% finance deals, which include:
- Large deposit or balloon amount: dealers will typically require a significant deposit before entering into this kind of loan. Alternatively, a large balloon amount may be required to pay at the end of your loan term. You will need to make sure you factor this into your budget.
- Fees: make sure you thoroughly review any monthly maintenance or management fees as they may be making up for the little-to-no interest this way.
- Credit history: your credit history will often need to be immaculate to be considered for this type of loan.
- Shorter loan terms: a 0% finance contract is often offered at a shorter term as dealers want to pay it off faster. This means higher repayments (depending on your deposit or balloon amount).
- Selected models: this finance offer normally doesn’t apply to all of the vehicles at a dealer either. If you had your heart set on a particular model then you might be disappointed to find the 0% deal isn’t available.
Okay, But What About “Guaranteed Price On Future Trade-In”?
Another option offered by some dealers is a “guaranteed price at future trade-in” against your next new car. From a psychological (and sales) point of view, this is the same as locking you into buying your next car from them as well – very clever!
Again, the problem is that the cost of offering this guaranteed buyback price is generally an upfront loading to the cost of the car. And often these deals come with restrictions that may preclude you from taking up the offer anyway when it comes time to upgrade.
Do Your Homework & Save $$
It’s important that you have done your homework on car values before you go into the dealership. You need to have a clear idea of the value of your current vehicle if trading it in, as well as the price you should be paying for your new car. Half an hour researching car prices on a few of the online car sales sites will pay dividends here.
So How Do I Get The Best Deal On Car Finance?
If you want to get a real deal on the finance for your next vehicle and not get yourself into a 0% lemon of a deal try the following approach:
- Ask how much the total repayments on the loan will be. This takes interest rates out of the equation and gets down to the brass tacks of how much you will actually be paying in the end including any fees, balloon payments etc.
- Ask straight up if the price of the car is negotiable or if they interest rate is tied into the price. You’ll find out soon enough whether the deal is too good to be true if you can’t negotiate the price as well.
- Shop around when it comes to car finance. By shop around, we don’t mean that you should apply for loans with multiple lenders (this can be bad for your credit rating). Instead, look at getting pre-approved with a finance broker before you go shopping so that you can negotiate a suitable deal and compare it with the 0% finance that the dealer is offering you. At least if you do decide to take the 0% car finance option, you will have done so having taken all factors into account.
- Generally, a 0% or 1% interest rate car loan is only available over a 3-year term. This means that if the price of the car is $5K more because of the low interest rate you’ll end up having a larger monthly repayment figure as well as paying more than if you got pre-approved finance and you were able to negotiate a much lower price.
- Be prepared to try and negotiate with the dealer. While they might not budge, it’s a good idea to ask anyway. Be prepared to walk away!
- You can also use our car finance calculator to get an idea of your repayments and the current comparison rate to better inform yourself about what a standard finance arrangement might cost you.
Need More Help Deciding On How To Finance Your New Car?
For more information, you can talk to us about car finance to make sure you’re putting the best foot forward. Give one of our friendly staff a call on 1300 769 999.