Traditional Auto Financing Offers Best Deal of All
For every 100 people that attempt to get 0% financing from an auto dealer, only 10 of them will qualify. Because qualification is left up to the auto manufacturer, only those with "golden" credit are eligible. In most cases, auto manufacturers won't define what qualifies as "golden" credit. So, what happens to all those not qualifying for the 0%? They get "moved up" to a higher rate.
These offers usually are restricted to short-term loans such as 12 months or 36 months. With such short-term loans the monthly payments can run as high as $900, which is not an affordable option for the average person. There might also be a requirement for a larger down payment, such as 10% down.
Another fall back is that not all car models qualify for the 0% offer. The offer may be restricted to cars in stock. As a result, it's difficult to negotiate the price of a vehicle. You could end up paying more in order to get 0% financing because unwanted options can add 25% to 30% to the sticker price of your car.
You should also be cautious of low-rate offers. Again, the low rates that most dealers advertise are for short-term loans: so short, that most people can't afford the monthly payment. For example one dealer offers 1.9% financing, but that's only available on two-year loans. A new $20,000 car with a $2,000 down payment (10% down) will require $18,000. This translates into an astounding $765 monthly payment.
The same dealer offers other options, which become less attractive but more realistic as the loan term lengthens. For example let's say the dealer's three-year loan has a 4.9% rate, while its four-year loan has a 5.9% rate and its five-year loan has a 6.9% rate. Financing $18,000 on your $20,000 car at the dealer's 5.9% rate over four years results in a monthly payment of $422. That fits a more realistic budget but you could do even better by financing through a financial institution if rebates are available.
If you choose the dealer's rebate plan you give up the low interest rate loan, but get a $1,500 to $3,000 cash rebate. Adding the rebate to your down payment can make traditional financing through a financial institution very attractive because the larger down payment reduces the amount you need to finance.
If you purchased a vehicle when interest rates were higher, you can still save money by refinancing. If you bought a $20,000 car at 0% dealer financing, with at loan term of two-years, your monthly payment would be about $833. If you refinanced at a financial institution, at a rate of 5.50% and lengthened the loan term to four years, your monthly payment would drop almost in half to about $465. Of course you'll pay interest for the length of the loan but you'll be putting hundreds of dollars back in your pocket each month.
No matter what your situation is, talk to Heritage Credit Union when you have questions about the best vehicle financing. It's your safest bet to get straight answers and the best vehicle financing possible. We offer SAME DAY LOAN APPROVALS and many financing options.
