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This is why the very first step for car buying should be getting pre-approved for a loan from your credit union. You walk in knowing you're good for $35k at 1.9% or whatever. Negotiate your price for the car. Then do the math to see if taking such a manufacturer rebate and using your financing rather than their 0% works out to be a better deal.
Great post. Always do the math. Can't reinforce that point enough.
Sometimes you can come out ahead by financing over a short period. Financing arms of car companies will give dealers a kickback if they finance a car, since it means interest for them. Negotiate with the dealer to get as much of this kickback as possible off the price of the car, explaining that you're prepared to pay cash if that would be cheaper. If financing with the rebate makes sense, then make 2-3 payments and pay the car off in full.
Not all deals are 0% OR cash back. Some are just 0% and that's it.
Howver, the cash back deals aren't really a scam. The automakers throw it right out there. Zero percent financing or (x) cash back. The buyer can decide what they want to do. The cash back option is something that a lot of people could never even dream of taking advantage of, because they don't have cash to begin with. So they're financing either way, and 0% sounds better than 8% (or whatever).
For those who do have the cash available, they have to determine whether the opportunity cost of tying up their capital in a depreciating asset is worth the loss of the incentive. The same people are probably also evaluating leasing in the equation, which can be a good deal under the right circumstances.
My daughter had just bought a house during the crash and shortly afterwards her car was totaled. She went to a Toyota dealership that had the no-haggle pricing, which was actually great (I went with her). They offered her a lease option at the time, where she would lease it at 0%, and if she decided to buy it after so many years, I think it was 3 years, then she could buy it for the remaining amount owed, and all of the money she paid on the lease went to the purchase price.
At the time, she needed to hold onto cash for house repairs, so she took the deal, intending to buy it after the lease was up, and then she financed it through her bank. For her, it was a great deal.
I don't think 0% financing is even available to anyone without stellar credit, though.
And the dealers still have their mark-up on the cars, they just don't get the additional financing charges. If cars aren't flying out the door, some profit is better than none.
How much is a positive item on your credit report worth to you?
Quote:
Originally Posted by Mandalorian
It's actually a better deal to take 0% as opposed to paying all cash upfront.
Depends on how much of a rebate they're offering if you pay cash (e.g. 0% of $1,500 cash back), but unless you're willing to put the money into a high-risk investment, usually it's a wash.
Quote:
Originally Posted by NoMoreSnowForMe
I don't think 0% financing is even available to anyone without stellar credit, though.
Taking the 0% financing and setting up an automatic payment from your bank is a good way to maintain stellar credit. A nice big secured loan with 100% on-time payment history will contribute positively to your credit rating for the next decade.
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How much is a positive item on your credit report worth to you?
