When is 0% for a car loan not really zero??

Good Morning! Today’s blog is guest written by our Personal Auto Shopping Service Manager, Bill Fultz. Bill had over 20 years in the auto sales business before he came to work at our credit union. Here, Bill gives us an education on how a zero percent auto financing deal may not actually equal zero percent for the consumer and could cost them more than conventional financing.

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This time of year, we make our members a lot of auto loans. One of the phrases we often hear is, “I can get Zero Percent financing at the dealership.” But, is Zero Percent financing really 0%? Do you save more money taking the car with the dealer’s 0% financing or would you be better off negotiating the price of the car including the rebate and taking out a loan from your local credit union?

Here is the dealer’s basic program: 0% financing for up to 60 months or you have the option of taking a rebate from $1,000 to $2,000 and find your own financing. Which one is the better deal for you? Let’s look at this 0% deal and compare it to a low interest Meriwest Credit Union 60 month loan with the manufacturer’s rebate applied.

Dealer loan:

$20,000 @ 60 months 0% interest = 60 payments of $333.33

Meriwest Credit Union loan after $2000 rebate is applied:

$20,000 minus $2,000 rebate = $18,000

$18,000 @ 1.99% * = 60 payments of $315.20 total interest paid: $925.20

$18,000 + $925.20 = $18,925.20

You save $1,074.80 ($20,000 - $18,925.20) with a Meriwest Credit Union loan

(This is an example. Your actual savings will depend on the size of the rebate on the Vehicle you purchase and the actual rate you qualify for at the Credit Union).

Besides the outright savings using your Credit Union loan, you also get that savings up front!  That means that even if you decide to sell or trade in your vehicle before the 60-month loan is paid, you already have saved the money when you purchased. 

If you decide the 60-month 0% is the better way to buy, also consider that in order to actually save the full amount you must keep the car the entire 60 months.  If you sell or trade before that time period, you have lost the value of the rate.  Statistically most 60 month loans are paid off by members in a period of 36 months, as members choose to sell or trade in their vehicles on a newer model and in some cases as a result due to an accident.  

Members who take the up front cash rebates are free to do as they please with regards to trade-in etc, since they are not forced to keep the vehicle for the full term of the loan in order to realize the advantage of low or 0 % financing.  So, if you are in the market for a new vehicle from a manufacturer offering large rebates or artificially low interest rates, contact a Meriwest Credit Union financial service representative to give you a comparison between a Meriwest loan and the Dealer’s.  You might find out that 0% isn’t really as good as it sounds!

About P.A.S.S.: Whether you're looking for a new or used auto, using P.A.S.S. means you don't have to deal with dealership salespeople. Instead, you work directly with Bill Fultz, Meriwest's Personal Auto Shopper and your very own insider in the automotive world. He has access to thousands of new and used cars in dealer inventories all over the state. Need a new or used car? Check our link at WWW.Meriwest.com/PASS for more info.

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Our next Financial Education Workshop:

Credit Myths and Credit Repair

December 11, 2013 - 6:30pm

Meriwest Credit Union Main Office

Training Room

5615 Chesbro Ave

San Jose CA 95123

Please RSVP to Gmeyer@meriwest.com