Should You Choose 0% Financing?

By

Senior Pricing Analyst

Alex Bernstein is the Senior Pricing Analyst for CarsDirect.com. Each month he studies immense volumes of pricing and incentives data in search of trends that are useful to car shoppers. In the process, he often breaks industry news stories -- his analyses and insights have been featured on websites such as Automotive News, The Detroit News, Autoblog, The Truth About Cars and The Car Connection.

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, Senior Pricing Analyst - November 10, 2017

There's no shortage of auto manufacturers offering 0% financing on new cars & trucks for Black Friday. Many are now offering 0% APR for 72 months plus a $1,000 bonus. But should you really choose 0% financing? Probably not.

That's because other incentives like cashback can generally save you a lot more money. Here are some examples in which choosing 0% APR, even for 84 months, would cost you more money in the long run.

Ford Focus

This month, Ford is offering a standalone deal of 0% APR for 72 months plus a $1,000 bonus on all versions of the 2017 Focus. On an $18,000 car, your cost after 6 years would be $17,000. Sound like a good deal? Not so fast.

Although it's true you'd save about $1,691 in interest compared to financing at 3% over the same period, it's not the whole story. As it turns out, you'd be giving up as much as $4,500 in factory cash to help drive down the price.

Most versions of the Focus are eligible for $4,000 cash. The SE with EcoBoost is eligible for $4,500. At 3% over 6 years, your cost would be $14,768 with the rebate. Over 5 years, your cost would be $14,554, which is $2,446 in savings compared to the featured deal.

Bottom Line: Even small cars can have big discounts

Chevrolet Malibu

For November, Chevy is offering 0% financing for 72 months on many 2017 models like the Malibu. Given that the automaker's regular financing rate is 3.9% for 60 months, this sure comes off as a great deal.

On a $28,000 car, your cost would be $28,000 with the deal in question. However, the brand also has a standalone offer of 20% Off MSRP. That would equate to a $5,600 discount.

At 3% for 60 months, your cost would be $24,149 with the 20% deal. That's a $3,851 advantage compared to the 0% offer, a considerable amount.

Bottom Line: Don't underestimate the value of a 20% discount

RAM 1500

For Black Friday, all versions of the 2017 RAM 1500 are now eligible for a standalone offer of 0% APR for 72 months with a $1,000 bonus. For a limited time, you can also enjoy No Payments For 90 Days. On a $45,000 truck, your total cost would be $44,000.

However, versions like the RAM Rebel are eligible for up to $6,250 in rebates. At 3% over 6 years, your cost would be $42,390. Over 5 years, it'd be $41,777. That's a difference of up to $2,223 compared to 0% financing.

Bottom Line: Trucks offer huge discounts you should be wary of giving up

Mitsubishi Outlander

Mitsubishi has done something rather unthinkable. The 2017 Outlander is now eligible for 0% APR for a whopping 84 months. Surely this has to be the best deal possible, right? Not necessarily.

On a $25,000 vehicle, your cost after 7 years would be $25,000. However, forgoing the 0% deal gets you access to a fairly large $3,000 factory incentive.

At 3% over 7 years, your cost would be $24,418. Over 5 years, it'd be $23,718. That's an advantage of up to $1,282 compared to the 0% promo.

Bottom Line: Even 0% APR for 84 months doesn't make for a great deal

Who Should Choose 0% Financing

It may be hard to admit, but long-term financing exists to help make cars more affordable for those focused mainly on payment. For many shoppers, the reality is that being able to keep to a monthly budget is more important than overall cost.

With the Outlander, you'd have a lower cost with the rebate but a payment of $395/month over 5 years. With the 0% financing offer, it'd be $297/month. Given the sheer variety of deals, consider exploring all your options so that you find a car that fits your budget and has an overall cost you feel comfortable with.

Some cars also combine 0% APR with large cash bonuses. They're rarer, but can offer the best of both worlds by helping drive down the price and enabling you to take advantage of attractive monthly payments. See All Top 0% Financing Offers »

, Senior Pricing Analyst

Alex Bernstein is the Senior Pricing Analyst for CarsDirect.com. Each month he studies immense volumes of pricing and incentives data in search of trends that are useful to car shoppers. In the process, he often breaks industry news stories -- his analyses and insights have been featured on websites such as Automotive News, The Detroit News, Autoblog, The Truth About Cars and The Car Connection.

Follow On: Google+ | Website