car loan

Evaluating Auto Loans: Rebates Versus Zero Percent Financing

Are you wondering if interest free auto loans are the best financing option? Maybe you have already found the perfect car, but are still evaluating the pros and cons of financing options offered by your dealer. Today, more than ever before, dealers are enticing customers with low car rate loans. Surprisingly, even 0% car loan deals can cost more over the life of your loan. Paying with cash is often the only way to get the best price for a car, but negotiation and thorough evaluation will give you an advantage.

Negotiate for best price

Before you start talking about how to get a low interest loan, focus on getting the best price on your new car. If you are an exceptionally skilled negotiator, take time to get a great price before discussing financing. Let the sales person know you are looking for the best out-the-door price; do not be afraid to walk away if your sales agent isn’t willing to negotiate.

Great credit history is the key

Now that you have settled on a price, keep in mind that not every buyer will qualify for the lowest interest rate. Financing companies like GMAC and FMC look for buyers with a solid down payment, a great credit score and a credit-worthy history. Your down payment can include cash and trade-in combined; expect to put down from 20% to 25% for those super low rates.

Do Math

If you are buying a $20,000 car with a $5,000 down payment at zero interest, your monthly payments will be $386 on a 48-month loan. If you accept a $2500 rebate at 2.99% interest, your payment goes down to $351. Over the loan period, you will pay an additional $1687 if you accept the lower rate in this situation. Evaluating low interest private car loans will not lead to one answer that fits every buyer’s; however there are reasons to choose lower interest.

  • If you have a substantial down payment of 25% to 50%
  • If you can afford the higher monthly payment
  • If you want to invest your extra cash in a CD or other interest-bearing instrument
  • If you think you might need your cash reserves for other purchases
  • If dealer rebates are limited or unavailable

Coice is yours

When you are considering zero interest APY auto loans, check the contract for add-ons and extra fees, negotiate for the best price and be aware that every deal if different. Rebates might be a better option. If you have cash to buy a car, always consider 0% loans and invest your money where it earns interest.