Is 0% Financing Too Good to Be True?

Because many auto dealers are offering 0% financing, you may be confused and wondering if this rate Is too good to be true? Unfortunately, in many cases the answer is yes.

Before we get into whether 0 percent interest is too good to be true, it’s important to understand what 0 percent financing actually is.  When you get a car loan, as everyone knows you are borrowing money to pay for a car.  The bank or credit union doesn’t give you that money for free.  Instead, you have to pay interest, or a fee that you give the financial institution for lending you the money. 

The phrase, “if it’s too good to be true, it probably is too good to be true,” is definitely something you should keep in mind as you search for a car loan.  Many times the 0% is a “teaser rate” meant to get you in the door and may not apply to you or may not be the best deal for you.

The problem with 0% financing is that not every potential car buyer qualifies for this super-low financing. The too-good-to-be-true rate applies to people with very high credit scores, excellent credit records and little or no debt. That means only about 5% of the population qualifies for the 0% rate.  And, if you do qualify you will most likely have larger payments over a shorter period of time, which may be difficult to fit into your monthly financial plan.  Unless you fall into this category, you may get stuck paying a much higher rate.

You may be surprised to learn that even if you do qualify for 0% financing, it could cost you more in the long run. If the dealer offers you the choice of 0% or a cash rebate, taking the rebate and financing through allU.S. Credit Union could save you money – even if the rate is a little higher. Let’s do the math:

                                                   Dealer Financing                        Credit Union Auto Loan

Vehicle purchase price                    $20,000                                            $20,000

Cash rebate                                           $0                                                 $3,000

Amount financed                               $20,000                                           $17,000

Interest rate                                        0% APR                                      2.49% APR

Term of loan                                      48 months                                    48 months

Monthly payment                               $416.67                                          $372.46

Total Saving/Life of Loan                                                                        $2,122.08

  • allU.S. has the funds and healthy relationships with car dealers to make the loans.
  • You have a better chance of having your loan approved if you have credit problems
  • allU.S. is a non-profit organization and work to provide members with high-quality customer service
  • You start off with a lower loan amount if you take the rebate, saving you money in finance costs.
  • You could get lower monthly payments with allU.S., because low auto loan rates are available for loans with longer terms as well as shorter ones.
  • Our members have a more personable experience at allU.S. so you can openly discuss your concerns about your loan, discuss flexible repayment options and review your financial situation.
  • You may save money on the total cost of the loan, because allU.S. doesn’t charge application fees or prepayment penalties. 

As we pointed out above, you’ll actually save more by taking the dealer’s rebate and financing your vehicle purchase at allU.S. Credit Union. An informed buyer is definitely the best buyer!!! To learn more about vehicle financing or to apply for your low-rate auto loan, visit us online at speak to Robin or Stephanie at the branch.