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Is 0% Too Good to be True?

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December 16, 2016
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Is 0% Too Good to be True?

The phrase, “If it’s too good to be true, it probably is too good to be true” is something that you definitely should keep in mind as you search for a car loan.

Before we get into whether 0% interest is too good to be true, it’s important to understand what 0% financing actually means. When you get a car loan, as everyone knows, you’re borrowing money to pay for a car. The financial institution 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. 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 that 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 happen to 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 TVACCU could save you money – even if the rate is a little higher. Let’s do the math:

Dealer Financing TVACCU Auto Loan
Vehicle Purchase Price $20,000 $20,000
Cash Rebate $0 $3,000
Amount financed $20,000 $17,000
Interest Rate 0% APR 1.95%
Term of Loan 48 months 48 months
Monthly Payment $416.67 $368.45
Total Saving/Life of Loan $2,122.08

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