Should I finance my car at 0% or take the factory rebate?Jan 15th, 2011
This is one of the most commonly asked questions I get from friends and clients alike, when choosing how to best finance their new vehicle. I always find it interesting how focused consumers get on “having to have the low rate.” I have seen potential clients walk out of our dealership because the particular Hyundai they were interested in didn’t have 0%. What they didn’t take the time to understand is that it had a sizeable cash rebate and still a very attractive 2.9 or 3.9%.
In some cases, taking the 0% is definitely the best way to go. In many cases, however, it is not always the most cost effective way to purchase a vehicle. There are often very attractive cash discounts available that more than offset the low interest rate that is offered. Low finance rates are a tool that vehicle manufacturers use to make the offers on their new cars seem very attractive to consumers. In addition to low interest rates, they frequently offer cash incentives to purchase any given make or model.
As a consumer, don’t be too quick to assume that the 0% offer is the cheapest way to purchase the vehicle. It may be more advantageous and more cost effective to opt for the cash discount and pay a slightly higher interest rate on your vehicle loan. If you are unsure, or aren’t able to determine on your own which is the best way to purchase your new vehicle, simply ask us. We are happy to provide to all of our clients a no hassle, pre-purchase private consultation with one of our Financial Services representatives to go over which will be the most advantageous way for you to purchase your vehicle based upon your own personal financial situation, and the incentive programs that are offered on the vehicle at the time you make your purchase.
Let’s use a quick example to illustrate this situation. Let’s say you are buying a vehicle for $30,000, and you have a trade-in worth $10,000. This is a very common situation. If there is 0% for 60 months available, or a $4,000 cash rebate available combined with a 3.75% interest rate, which is the best way to purchase?
Most consumers get tunnel vision on having to have the 0% loan. The payment on the 0% in this example would work out to approximately $380. The higher rate (3.75%), after deducting the cash rebate of $4,000 and effectively paying $26,000, would return a payment of roughly $337, thus making it less expensive over the term to purchase it this way, by about $2,580. ($380 – $337 = $43 x 60mos. = $2,580)
I don’t know about you, but I certainly know I could use an extra $2,580 in my jeans over the term of the loan. The point is this: Don’t get too hung up on the low interest rate, it is not always the best way to purchase a new vehicle. You just might be tripping over the dollar bills trying to pick up the nickels.