A recent J.D. Power Dealer Finance Study said that offering zero percent interest is considered to be one of the most successful motivators to get car buyers into dealerships. The catch is that to qualify for it, the buyer must have an excellent credit rating. Many people don’t qualify for the zero percent interest rate.
For those with less than stellar credit, dealerships arrange financing for your car they often add on 1-2% interest that goes directly into their profits. Although these numbers may seem small, they often add thousands of dollars to the price of your loan.
Before latching onto the no-interest deal, look around. Many car dealers are currently offering cash-back offers that could be the more financially advantageous than the interest-free option. Some car sellers actually offer a choice between a no-interest and cash-back deal. Fiat Chrysler, for instance, will sell you its 2015 Jeep Cherokee SUV for no interest or a $2,000 cash rebate. Experts say the rebate is the better bargain, reducing the loan amount from $27,213 to $25,213. At 2 percent interest, that makes the monthly payment just $440, compared with $452 per month under the zero interest terms.
Car buying is best in the late summer and early fall, when dealers try to clear their lots of the current year’s leftovers. The zero-interest offers are escalating, with many of the producers hoping to snag buyers to help in that process.
The secret to getting in on the best bargains is to nurture your credit rating. A credit score of 754 can probably earn you a 1 percent interest rate. The rates go up as the scores go down. Getting preapproved for a car loan through a bank or credit union enhances your bargaining stance. The dealer is anxious to have you finance through him and may be willing to dicker on the interest issue.
The important thing is to do the math before facing the decision. Factor in your credit score with the understanding that the higher it is, the more likely you will be to get a lower interest rate. There will come a point in the math at which you will find that zero interest actually can lower your payments.
Regional incentive programs, down payments and trade-in values also will affect the bottom line. Remember, too, that zero interest deals usually apply only to certain cars on the lot. If you have something very specific in mind, it may not apply. Once you reach the point at which you qualify for zero interest, the dealer may lose his tendency to haggle. Just be sure before you sign that you have made the best deal possible.