THE TRUTH ABOUT ZERO PER CENT FINANCE

March 9, 2017

There’s no such thing as a free lunch, or so the saying goes, and that’s definitely the case when it comes to car manufacturers and dealers.

Just like everyone, they’re in the business of making money, and given the tough economic conditions across the world, let alone the auto sector, manufacturers and dealers certainly aren’t exactly in the mood for charity.

As the big car brands battle it out for market share and sales, dealers will do whatever it takes to grab your attention. It seems there is no end to the inventive variety of incredible sounding deals and incentives they come up with; from cash backs to extended warranties, from upgrades to low finance deals.

Why? Because dealers survive by getting high volumes of people onto their showroom floor, where they can ply their trade and persuade you to buy their latest offering.

 

Enter the 0% finance deal.

 

On the surface, it sounds great doesn’t it? (zero anything seems pretty good when it comes to finance). You get to borrow the money to purchase the car, and then pay it back over time without paying any interest on the deal. How could you lose?

Here’s how.

First up, dealers build the money they expect to lose on the finance deal into the up-front price of the car. This means they’re unlikely to be as flexible on the price of the car, and you’ll usually pay a higher ticket price than if you were negotiating without the 0% finance deal attached.

Next, they’re likely to offer you less on your trade in. They will most likely offer you well under market value, because the greater margin they make on the trade, the more they cover the finance costs.

You’ll probably also find you’ll be obliged to lock into a fixed car servicing arrangement, and these service charges can be a lot higher than you expect. And, as a kicker, the pressure will be on big time for you to sign up for an extended warranty.

So it pays to be well informed – and well prepared – before you even set foot in a dealership and enquire about their 0% offer.

Not every dealer is going to be sneaky about all of this, however. Some are quite transparent about the deal. To them, the 0% finance deal is just a way of getting you in the door so they can start talking. Trust us, they are just as happy if you buy the car without the 0% deal.

Don’t fall for the usual traps.

0% finance deals can come with a range of terms and conditions, and not everyone immediately qualifies. In fact, dealers have traditionally made it somewhat difficult to attain approval for the 0% finance deals, and they usually require unblemished credit history. Shorter loan terms and larger deposits are also characteristics of these finance deals. The dealers put these restrictions in place to make it hard to qualify, so that their salesmen can then revert to the normal selling model, which they know to be profitable.

If you’re still keen on the 0% finance deal – and they can work in your favour in some circumstances – make sure you do your homework, and don’t fall for the usual traps.

Get a realistic sale price of the car you are buying, know what your trade is worth and don’t settle for less.  Make sure you research what other finance options are available. Plus, you should use an online loan calculator to work out and compare your monthly repayments side by side, with the same deposit and terms to see what’s the cheapest.

Of course, you can ask the experts at Union Fleet to do the sums for you, and to make sure that the deal you are being offered stacks up. We’re always happy to help.