Is Zero Percent Financing a Good Deal?

[ 0 ] June 19, 2014 |

new-car-keysIf you are in the market for a new car you’re probably aware of the dealer/manufacture incentives designed to get you into their showroom and ultimately sell you a vehicle. Some of these incentives involve a generous rebate or zero percent financing. No doubt these are both great offers but how do you determine which is best for you?

Often there’s an “either/or” decision between the rebate and the financing – you can’t have both in most cases. This makes the decision a little more complicated as you´ll have to choose. If you don’t have much savings, the rebate can be used as a down payment to lower the amount needed to finance and to qualify for a lower interested rate. If you already have a down-payment the zero percent financing might be of more value to you.

The first basic rule of zero percent financing is knowing if you qualify, not everyone does. There are several conditions you need to meet to take advantage of zero percent financing, such as:

  • Having a very good credit score, known as “A” or even “A+” in the Industry.
  • Having a history of making all credit payments on time, every time.
  • A good down-payment or trade-in with high equity (value in excess of what you owe).

The following illustration will give you some background to help decide whether you should take the zero percent financing or the rebate. For the sake of comparison we’ll assume each loan will be calculated based on a 60-month term at the “A” credit score rate (see above). Also the data used is based on average new car cost and average rebate as communicated on the Cars.com website. For your consideration:

  0% Dealer Financing 1.99% IAACU Financing with Dealer Rebate 1.99% IAACU Financing with Dealer Rebate and Bi-weekly payroll deduction
Purchase price $ 30,000 $ 30,000 $ 30,000
Down payment < $ 3,000> < $ 3,000> < $ 3,000>
Rebate $ 0 < $ 3,000> < $ 3,000>
Amount financed $ 27,000 $ 24,000 $ 24,000
Monthly payments $ 450.00 $ 420.56 $ 188.96*
Total re-payment $ 27,000 $ 25,234 $ 24,564
Total Savings   $1,766 $2,436

*Bi-weekly is 26 payments per year.

Be aware that some dealers may require you to finance with them in order to get the rebate, typically at a rate higher than available at IAACU. When that occurs you can simply finance with the dealer, collect your rebate and then refinance your car at IAACU to include bi-weekly payroll deduction for additional savings.

IAACU is a not-for-profit financial institution that exists solely for the benefit of our members. As you can see from the above illustration, we can help you make the most of dealer incentives. Please contact us if you would like help in determining the best deal when purchasing a new vehicle – we are here to serve you.

Thank you for your membership and continued support of IAACU!

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Category: CEO Corner

About the Author ()

Sean has held the position of Chief Executive Officer at the IAA Credit Union since June of 2005. In this position, he is responsible for the overall management of the $200 million financial institution, assuring financial strength while providing maximum value to its members. Also, he ensures that the Credit Union complies with all State and Federal laws and operates within the policies and expectations of the IAACU Board of Directors. He is a 1986 graduate of Illinois State University where he received a Bachelor of Science Degree in Agribusiness with a minor in Economics. He has also completed the coursework and received the CPCU, ChFC and CLU insurance industry designations. Sean served a combined 20 years in the United States Air Force and Air National Guard as an Aircraft Maintenance Officer retiring in 2002 at the rank of Major. Sean and his wife Kim have five children and reside northeast of Eureka, Illinois in Woodford County.

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