Advantages Of 0% Auto Loans

0 auto loans, or 0% APR loans, are quite simply one of the best deals you can get when purchasing a car. Car loan interest rates are one way that large auto companies make a substantial profit off of consumers when selling new vehicles. Toyota Financial Services, GMAC, Ford Credit and Mercedes-Benz Financial are the lending entities of some of the largest automakers in the world. These financial wings were created because automakers recognized that most customers could not afford to purchase a new vehicle with one up-front cash payment. Often times, these entities offer lower loan rates than a bank would, yet they create more profit to the automakers than letting a third party handle the financing of their sales. Ideally, it works out better for both the automakers and the consumers.

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0% Auto Loans is Like Getting Free Money

Because most major automakers have a financial company set up to handle loans for purchases made at their dealerships, they will frequently offer low loan rates to convince more consumers to purchase vehicles. Sometimes, these rates even go as low as 0% APR. Getting a no interest auto loan is essentially like getting free money. Not only do you avoid paying interest, you actually end up paying less than the agreed upon price of the vehicle when you take into account the time value of money. Look at it this way: if you were to purchase a car with cash, you would avoid interest, but the money would be gone. However, with a zero percent loan, you can avoid interest while investing the excess money and getting a return on it before paying off your automobile loan. Essentially, a 0% loan offers the best aspects of buying a car with cash and buying a car with a loan.

0% Auto Loans or Cash Rebate

The attractiveness of a no interest loan is fairly obvious, so if that choice is available why should you consider any other option? At times, the automakers will offer a sizeable cash rebate as an alternative in place of the 0% loan. In some cases, the final price with the rebate may be a better deal in terms of the time value of money, depending on a variety of factors. This includes the price of the vehicle, the length of the loan, and the amount of the down payment. In most cases the wise decision is to take the 0% loan if it is there. However, you may want to look at the net present value of the total payments for each option to make sure. You can ask the dealership to calculate these figures and their financial staff should have no problem presenting them to you.

Negatives of 0% Auto Loans?

Are there any negatives to a no interest loan? In regards to the loan itself, there really are no negatives. The problem that does arise for many buyers is a matter of personal income and credit rating. Generally, a 0% loan is relatively difficult to qualify for, particularly on pricier vehicles. Without a high credit score and substantial annual income it can be challenging to actually receive the no interest loan that the company is advertising. However, as previously mentioned, a cash rebate is usually presented as an alternate option. If you miss out on qualifying for the interest-free rate, you should still be able to get a good deal with a relatively low interest rate.