Is a 0% finance car loan the best car finance or is it too good to be true?
Have you seen the 0% finance car loan ads and thought now there’s a deal? On the surface, it seems like the perfect deal. However look beneath the surface and you find it is not quite as it sounds.
HOW DOES A 0% FINANCE CAR LOAN WORK?
In simple terms, it is a subsidised finance rate that is only offered by a car dealer and only if you buy a car through them. This is a legitimate finance rate but it is part of what is called in the industry, a “subvention” rate.
This rate is designed to get people into the dealership. Or another way to look at it is it’s a clever piece of marketing.
Usually, the price of the car has been set by the dealer and is not negotiable if the 0% finance car loan rate is being used. In other words, the dealer maximises the price of the new car to allow for the subsidised finance rate.
Another misconception is the rate is available for all cars. This is rarely if ever the case. Usually, it is limited to makes and models that are less popular, demonstrators or models in run out.
IS IT THE BEST DEAL?
Let's say the model you want is eligible. Next hurdle will be your eligibility. This normally involves meeting strict lending criteria, a large upfront deposit and a perfect credit history.
Finally, to reduce the weekly repayment on the loan there is a balloon payment that is included in the finance offer. What is a balloon payment? It is a large repayment that is made at the end of the loan term. Normally the payment is a third of the amount you finance. However, it can be more or less depending on the offer.
Be aware the balloon payment could be higher than the value of the car at the end of the loan period. This is where knowledge about car values is critical when considering this type of car finance. We have had many clients who have chosen this type of finance and come to us to get a new car but they are left with a payout greater than the trade value of the old car.
YES OR NO?
Our advice is before you speak to a dealership about their advertised 0% finance car loan, do your homework on other options for finance. This article by Choice Magazine breaks it down well.
Talk to us about car values and how we can negotiate a better price on the new car and your trade-in.
If you are financing your new car talk to a professional finance provider about securing your finance before you buy your car and understand the fine print of a 0% finance car loan and compare it to a competitive transparent finance rate. Don’t have a preferred financier, our business manager is available to advise.
Customers who use our service get a significant discount on the price of the car and their trade-in when we negotiate the sale. Add a “real” finance rate (our words) negotiated by a professional financier you normally pay less over the term of the contract than if you obtain subvention finance.
Ultimately it comes down to your own personal circumstances as to how you finance your car.
Contact us to discuss.
Important Information: The information is general in nature and subject to change It does not take into account the particular objectives or financial situation of any potential reader and is for information purposes only. Redplumautomotive.com.au does not represent or guarantee that the information is accurate or free from errors or omissions.