November 21, 2014
Have you seen the ads for zero % (yes, 0%) finance on a car loan and thought to yourself, that has to be too good to be true, what’s the catch?
Well, Daniel Meade, your mobile loan expert from Mortgage Choice in Brisbane, has done some digging on the topic for you. Here’s some of the considerations to take before you jump on board::
Zero % Car Loans, how they work:
0%. It makes me nervous just typing it. Sounds too good to be true right? Probably, but not necessarily! As with all loans, it depends on your individual financial circumstances.
That said, there’s still no such thing as a free lunch, or a free car, or a free loan.
So it’s fair to expect that if someone is flashing a big fat 0% interest rate at you, it will most likely see you slugged at some stage of buying your vehicle, with additional fees and charges.
Zero % also has its positives, and when considered with all your circumstances taken into account, can work for some. We’ll look at that a little later on.
First, what is involved with 0% interest rates on car loans? We'll give you the pro's and con's:
Low interest rates means low monthly repayments, will it work for you?
Researching the market value of your car before you begin negotiations on trade in’s with a dealer will help you avoid being caught in a too good to be true interest rate trap.
On the upside, 0% interest rates can really work for some people, if they are aware of the costs, and are ready and willing to accept them.
Often cash flow can be difficult, so a low interest rate, despite the restrictions, certainly can work for some, in terms of the ongoing re-payments on a monthly basis.
That said, be ready to negotiate. Don’t be pressured into signing up for an on the spot purchase, especially because of a ‘limited time only’ pitch.
Make sure you are aware of all the restrictions that come with a loan of this type. We share some of them below, but please consider that all dealers will have their own products, and these may vary. This is a generalised view only.
- Eye catching offers – not getting roped into an offer that appears really, really, really good is easier said than done for some. Flashy, eye catching offers are designed to grab your attention, and create a sense of urgency. They make you believe that if you don’t act RIGHT NOW, you will miss out. When you see “limited time only” attached to a low interest rate advertisement, it pays to check how limited the offer is. Will they keep the offer going for a day, a week, a month, do they do the same deal every year? The point is, do your homework before you act. Get an expert like Daniel Meade to look at your specific financial situation to determine if in fact a low interest rate, for a limited time only, is going to be the best option for you.
- Less price flexibility –with 0% interest rates, these loans basically mean it’s like the “inflexible” fair on an airline. You pay for a cheap seat, and you can’t change it. You give up your right to flexibility by paying less and get no changes without a huge cost. No food, no bells and whistles” cheap seats on a budget flight, versus the “fully flexible- seat where you can make as many changes as you like, and eat on board without getting your wallet out, because you’ve paid for the privledge” of expensive seats on a business class flight – i.e, a higher interest rate car loan.
That’s the long way of saying, you give up any flexibility on the price of the car, or on your trade in, when you take a low interest rate to buy it. .
Remember that the dealer still needs to get their pay day from the profit from the interest of selling the loan to you, to buy the car. Generally what they do is say they cannot move on price in order to give you this rate. The finance providers factor the interest costs into the upfront sales price of the car, rather than spreading the interest cost out over a series of repayments.
- Higher ongoing servicing costs – Typically, new car purchases are granted the 0% deal. This means it is also likely that you will be obliged to service your new car, by the dealer, at set intervals. If you don’t, you risk voiding the warranty. Sounds ok, sure, but the catch is, dealer services are generally more expensive than independent mechanics. You may also end up locked in to more services than are required to keep your warranty. Read the fine print on this one before making a decision.
- Upselling additional services of the car dealer– generally, giving up their profit is not something you hear car dealers volunteering to do in a hurry. You can be sure that they will be attempting to beef up their profit rather than give it away. Tactics used to do this come by way of offering extended warranties, and/or guaranteed prices on your next trade in. Which kind of sounds like they are also locking you in for a future sale.
To keep it simple:
Speak with a car loan expert, Daniel Meade, before you take the offer:
Daniel Meade is a Mortgage Choice car loan expert and he can compare all forms of car finance for you. He has all your questions covered in his blog series on car loans, so for more information, please use the below links:
3: Refinancing your car loan
Perhaps the 0% loan is the right offer for you, and if it is, great! Daniel will help you do the maths to determine if it really is the best solution for you, and will ensure that you will be making an informed decision when it comes to financing your new car.
Daniel is ready to help you with your car loan needs, so if you want to learn more about your finance options, please call 07 3833 9666 or email email@example.com today.
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This article is for general information purposes only. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the advice, consider its appropriateness to your circumstances.
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