Zero Percent Financing: A Consumer Benefit Or A Marketing Trick?

In recent years, zero percent financing has become an increasingly popular financing option offered by most car manufacturers on new cars and trucks. While it does sound great and is extremely appealing to many car buyers, there are few things attached to it that may diminish the benefits.

Commonly, car dealers offer an alternative of a zero percent financing or a cash rebate on the vehicle purchase price. Let us say, that you are confronted with an offer of getting a cash rebate of $3,000 or a zero percent financing. While you are going to have no interest to pay, you will end up paying $3,000 more for a vehicle that you may have saved otherwise. Should you pay off your loan early, the advantage of taking zero percent financing would become null.

It is important to keep in mind that any car is a quickly depreciating asset. Taking a rebate instead of a zero percent financing incentive may help you to reduce the gap between the loan balance and the vehicle fair market value. Since your car depreciates most in the first year of use, having it totaled or stolen may leave you upside down on your zero percent auto loan since your insurance company would not cover extra $3,000 you paid for your vehicle. That means that you would have to come up with the difference to cover the remaining loan balance.

It is important to remember that nothing is truly free in this life. Financing incentives, typically coming from the corporate offices of car manufacturers, are most commonly hidden in the vehicle selling price. Car dealers, sometimes offering zero percent financing on their own, follow the same strategy.

How Does It Work?

While it is somewhat understandable how financing incentives offered by auto manufacturers work, zero percent financing offered solely by a dealer may raise your eyebrows. Obviously, banks are not going to finance you at no interest, no matter how good your credit is, since they have to make money off you to stay in business.

What usually happens is that auto dealers rebate the bank upfront for the interest charges that a customer would accrue and pay to the bank otherwise. In simple terms, your dealer pays your interest for you. Since they are not going to make it a money-losing proposition, they have to compensate these expenses somehow. That is why these costs are built into the vehicle purchase price.

Typically they are offset by a rebate that a car manufacturer would give you on a new car purchase and/or an incentive that an automaker gives a dealer for higher volume sales. What this also means to you that there is less negotiation power on your side, since a dealer would be less eager to go down on a vehicle price in this case.

Financing Incentive or a Cash Rebate?

What this means to you is that a simple mathematical equation needs to be solved. When approached with a choice between the rebate and a zero percent financing, calculate how much interest you would normally pay on a car loan and compare it to the amount of rebate. If your interest charges are going to be greater, it may be time to consider zero percent financing. Should they be not, take the rebate and run away from the zero interest deal!

Scam Artists Want To Finance Your Next Car!

If you have shopped online for car loans recently you may have found hundreds of tempting offers. Many offers promise you guaranteed financing regardless of credit history, bankruptcy, divorce, and the end of the world … (well maybe we exaggerated that one a bit), but you get the idea.

Presently, over 100,000 people per day apply online to receive car loans from companies that promise financing with bad credit or no credit. What you need to be aware of is that not all of the websites out there are legitimate. If you are unfamiliar with the term, “Phishing Website” you should Google it today and learn what it is. You could be giving your information to someone that wants to steal your identity!

You might think, “Well if I have bad credit, then who cares if they steal it, won’t do any good for them anyhow.” That is not entirely accurate. Once they determine that your credit will not work, maybe your medical information will. Medical identity theft is rapidly growing due to increased health care costs and outrageous insurance premiums.

We recently heard of a victim who after applying for several car loans with no luck, and no return calls, she began receiving collection notices from a cancer treatment clinic in California. Since she lives in Maine, and is physically unable to travel, she got concerned.

Several months later, and several thousand dollars in attorney’s fees she found out that her social security number, income information, birth date, and other pertinent information was harvested from the internet and sold to scam artists that know how to generate medical insurance cards good enough to pass the “adequate” hospital screening process. All of this information harvesting was tracked to a website offering “guaranteed auto financing regardless of credit or income history”.

The worst part is her blood type was changed, because the person receiving cancer treatments on her information was type B and she was type A. Had she not caught this before going in for emergency treatment, she might have been pumped full of the wrong blood!

The moral of the story is, if you do not have the best credit and you want to get financing for a car or any other item, do some digging first to check on the credibility of the source you are working with. Your best bet will most likely be finding a dealership or local financing company that works with people to reestablish credit; or has other programs available that will fit your situation.

Chapter 7 Bankruptcy Car Loans

More now than ever before, many people are searching for chapter 7 bankruptcy car loans. With today’s economy, people find themselves filing chapter 7 bankruptcies to relieve themselves of too much debt.

When someone files for a chapter 7 bankruptcy they are filing with the court system asking that they be discharged from all unsecured debt. Unsecured debt includes such things as medical bills or credit cards.

Compare this to secured debts such as your home and your vehicle. Due to homestead protection laws your home is safe from your creditors acquiring it. With a chapter 7 bankruptcy, your car loan may need special consideration.

In some cases, people are finding that they must release their vehicle along with the discharge of other debts. This may be caused by a couple different situations. One reason may be that they have simply fallen too far on the payments. Or another reason may be because the monthly payment is simply too high to make and stay current with the new finances.

If this is the case for you, you may be in the market for chapter 7 bankruptcy car loans. These are considered sub-prime auto loans and you may be able to apply a few months after your discharge has occurred. Depending on some situations you may not have to wait this out and can apply as soon as you are discharged.

Because not all lenders work with those who have recently filed chapter 7 bankruptcies, it will require a little research to find a dealership that may offer you this specialty loan. Doing an internet search will help you locate a couple of resources near your home.

The next thing to do would be to take a good hard look at your new monthly budget and determine realistically what type of payment you can handle each month. Being prepared with this figure can help ensure you are not smooth talked by some salesman to buy a more expensive car. The biggest key after bankruptcy is to be sure that you live within your means and can make all your new payments on time.

Now collect a few pieces of documentation to bring with you when you visit a car dealer or auto consultant that offers chapter 7 bankruptcy loans. This would include a couple recent check stubs to show proof of your income. Also bring your driver’s license and proof of insurance. And the final thing to bring with would be a couple utility bills. This will serve as proof of residency.

You are now prepared to pay a visit to the dealership or the auto consultants office. Tell the salesperson your situation and the particular reasons that you had to file the bankruptcy in the first place. Ask them if there is anything else you can provide to help make the loan process a little better. Use the advice of the expert to give you the greatest chance at getting a chapter 7 bankruptcy auto loan.

Car Dealer Leasing Tricks

Too often when it comes to auto-leasing, people get so dazzled by the myriad terms and the jargon thrown their way that they end-up paying through the nose, relying on a dealer’s “help” than their own informed decision.

Here is a look at some of the tricks dealers use to pad their profits and leave the customers shelling hundreds of dollars more than the deal should be worth.

Trick 1: Leasing always a better deal than buying

Dealers use the lure of lower-monthly payments to entice customers to sign for long-term loans, with terms stretching for five years or more, making the payments even lower. There are two catches with such lengthy contracts: higher mileage, exceeding the prescribed limit, and hefty repair costs.

With leases charging on average 10 to 20 cents a mile for any extra mile over the agreed amount in the contract, and warranties only covering three years, you leave yourself wide open for hefty charges for excessive mileage and wear and tear.

Trick 2: Cheap 2-3% APR rate on your lease

The dealer is not quoting the interest rate you would be paying on your lease; he’s rather giving you the lease money factor. Whilst similar to an interest rate and important in determining your monthly payment, a more accurate rate is calculated by multiplying the money factor by 24. For example a “cheap” 3% money factor is 24 X 0.003 = 7.2%. This gives you a better sense of what your annual interest rate on your lease contract is.

Trick 3: Stress-free early lease termination

Dealers know consumer driving needs change and they would like to have the option of getting out of a lease commitment sometime down the road, before their lease ends. Truth of the matter is, when you sign for a lease, you are effectively saddled with monthly payments for the remainder of the lease term and there is little-choice of getting out early. Lease contracts carry hefty financial penalties for either defaulting on monthly payments or terminating the lease earlier than the scheduled term.

To avoid being on the receiving end of such tried-and-true tricks, educate yourself about leasing. Get down to the nitty-gritty and understand what the leasing terms used by dealers mean. Crunch the numbers along with him and understand how they arrived at the monthly payment figure. Don’t sign anything until you’ve understood all the terms and your numbers much those of the dealer. Do not let the dealer pressure you into signing; you are the one to determine whether the agreement is right for you.