Should i take 0 financing

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The information on this site does not modify any insurance policy terms in any way. Although both a cash rebate and 0 percent financing can help you save money on a new car purchase, they operate differently. A cash rebate is the amount of money given back to the car buyer in exchange for agreeing to purchase a vehicle, while a 0 percent APR car deal is an auto loan that comes with no interest or fees.

A large rebate can provide a big portion — or even all — of a down payment. When choosing between 0 percent financing and a rebate , you have to weigh the pros and cons of each one. Captive finance companies — finance companies tied directly to an automaker — sometimes offer 0 percent deals for a select number of new cars.

If you go into the showroom with a large down payment in hand, you can always take the rebate in cash. But for most people, the rebate will be credited toward the purchase price and might even be large enough to cover the entire down payment.

To compare the 0 percent APR versus cash back option, use a car payment comparison calculator. For the 0 percent option, the total amount of the loan would be the price of the car since no interest is charged. However, before making a decision, you should consider the pros and cons of each option. Also, the math could be different depending on the amount of the rebate and the length of the loan offered. For example, accepting a 0 percent auto loan with a short loan term could increase your monthly payments.

Whichever deal you take, make sure you can afford to repay the auto loan. How We Make Money. Jerry Brown. Written by. When you take out a vehicle loan, the lender will typically charge you interest in exchange for financing. Interest and fees, after all, are the primary ways that lenders make money. As you repay the loan, you reimburse the lender for the money it paid the auto dealer on your behalf.

The interest you pay helps the lender earn a profit. With a zero APR auto deal, however, you essentially borrow money for free. Financing a car interest-free almost sounds too good to be true.

But in reality, these financing deals are a tool that auto manufacturers can use to sell more vehicles. Lenders that offer 0 percent financing are known as captive finance companies and are linked to the auto manufacturers themselves.

So if Ford wants to sell more Fs due to overstock issues, it might offer zero APR loans to select borrowers through its own financing arm. For example, a dealership may push hard to sell you extra add-on products like extended warranties or gap insurance with your vehicle.

You also might have to forgo benefits like bonus cash or rebates that would normally bring down your purchase price. Finally, you typically need excellent credit to qualify for these special financing deals. Zero percent financing deals are generally reserved for borrowers with excellent credit — typically classified as a credit score of and above.

Also keep in mind that each lender has its own definition of excellent credit, and qualification requirements could vary from vehicle to vehicle. Because zero APR qualification standards vary so widely, your best bet is to call the auto dealership in advance. Ask what criteria you need to meet to qualify for interest-free financing on a specific vehicle. Aside from your credit score, an auto lender may consider additional factors when it reviews your application, such as:.

Regardless of the condition of your credit — good, bad or excellent — you should take the time to seek preapproval from outside financing sources as well. Interest-free financing might be a great deal for some borrowers. Still, there are a few potential pitfalls you should look for when considering this type of financing. Automakers want you to purchase your next vehicle from their company, not a competitor.

This is a key reason why 0 percent financing offers exist in the first place. In this same interest of attracting new customers, auto manufacturers often offer bonus cash rebates to buyers. Sadly, an auto manufacturer might not let you take advantage of both 0 percent financing and bonus cash. An auto loan calculator can help you compare apples to oranges when it comes to 0 percent financing versus bonus cash incentives.

Sometimes taking the cash rebate an auto dealer offers along with a higher loan APR will make the most sense as far as overall savings. In other instances, 0 percent financing might be the clear winner. Faced with this choice, some borrowers will opt to take advantage of the cash incentive and try refinance the loan elsewhere at a lower APR.

Depending on your situation, refinancing your new auto loan in a few months might be an effective strategy. But there are some downsides to consider first. Namely, taking out two auto loans back to back the original and the one you refinance it with might harm your credit. Multiple loans will result in at least two hard credit inquiries on your credit reports.

Six years is a long time to be paying for a car. Your needs could change before then. Not having a monthly car payment gives you more room to save. Are you willing to sacrifice or delay other financial goals for a new car you don't really need? Alternatively, an auto loan offered by a credit union at the average national rate would give the loan an annual percentage rate APR of 3.

With a traditional loan, you can also take advantage of manufacturer rebates. In total, a traditional auto loan with an APR of 3. Run your own numbers through our auto loan calculator to see what your actual monthly payment would be before taking on a loan. Learn how Louisiana FCU can make your car-buying experience a breeze. Request a call from one of our experts, or do the research yourself. Like this article? Subscribe to our blog and receive weekly articles that will help guide you toward the best financial decisions for your unique situation.