What Does Zero Percent Financing Really Mean on Vehicles?
Zero-percent financing means that car dealers offer loans to buyers with zero percent interest rates. Requirements to qualify for this are typically stringent, but those who do qualify can save significant money.
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Money Saved
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A person with a credit score high enough for zero percent financing likely wouldn't pay a high interest rate regardless, but even the difference of one or two percentage points can save thousands of dollars.
Credit Score
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Buyers must have very good credit to qualify for such loans. According to US News and World Report, in some cases, buyers need a score of 750 to qualify.
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Repayment Clauses
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Some zero-percent loans come with "poison pill" clauses that say that if the borrower makes a late payment, the interest rate will rise to a very high level.
Cash-Back Offer
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Dealers often offer "cash back" in lieu of the loan, and buyers typically need cash assistance with a down payment, and so choose this option.
Length of Loan
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Buyers who qualify for zero percent financing may face shorter loan periods (36 as opposed to 60 months) and likely will be restricted to new car purchases.
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References
- "Is zero percent financing too good to be true?"; Tri-City Herald; Eileen Alton Powell; September 23, 2002
- "The 0% Financing Craze: A Good Deal?"; US News and World Report; Sean Tucker
- "Paying Less: Zero-percent financing for auto loans reduces the total amount to be paid"; Winston-Salem Journal; May 13, 2008
- Photo Credit percent image by Soja Andrzej from Fotolia.com
