Topic: Zero percent interest...actual savings?

[bunky]

I need some clarification.
I keep seeing ads saying 0% interest on any new vehicle and when I talk to my credit union, they tell me that I am actually paying more than if I paid the prime+1% for a new car and for used it's prime +2.5%. This is at my C.D.
I know both institutions want my money, so who should I send it to?
Where will the best deal be?
Help!!

[hondasalesguy]

only take the 0% if you can get the car at the lowest possible price IN ADDITION TO the 0%. for interest on a chrysler van, you take your pick between a hugely incentivized (discounted) price OR the 0% financing. so if you pay $4K more for the vehicle, i would have to say 0% isn't really 0% is it?

[The Fuzz]

Nothing is ever free. You're paying for it somewhere.

[Sterling]

Banks can be just as kinky as a car dealer when it comes to persuading you to give them your business. Virtually all manufacturers provide either/or type of incentives. For example, either pay cash and get a $3000 rebate or finance at 1.9%.

Obviously, your bank wants you to take the rebate so they can loan you the money. It is a pretty simple comparison to determine which way will work out better for you. Generally, if a person is putting nothing or little down, the lower rate works out to be better than taking the rebate. But depending on the rate your bank gives you it may work out better with the rebate in some cases.

(Message edited by Sterling on April 18, 2005)

[sirAQUAMAN64]

You take the discount or you take the financing. One might be more advantageous to you than another.

If they gave you both, you'd be getting double the incentive. Work out what you'd save with a cash purchase vs the financing... might be worth it to use a line of credit and take the discount.

[citydude]

The dealers would normally offer you a cash discount off the purchase price if you don't "take advantage" of the lowered financing rate.
Let me give you an example.  If you finance $20000 at 0% interest for 36 months, your monthly payment is $556.
If the dealer offer you a $2000 discount if you don't opt for the 0% financing, so you borrow $18000 from your bank at 6% interest, your monthly payment will be $548.

So you see, in this case, your monthly payment is less if you borrow money from the bank even the interest is higher, due to the fact you're getting a cash rebate.
Of course each situation is different, it all depends on the interest, term, cash rebate, etc.
Citydude

(Message edited by citydude on April 18, 2005)

[sirAQUAMAN64]

Exact-a-mundo!

[johngenx]

I see the "cash back OR zero percent" all the time.  9/10 of the time I figure it out, the way to go is take the cash and finance elsewhere.

Now, some companies have no such stipulation, as they have no cash back offer, so that means you take the low interest financing, only AFTER you knock down to the best price possible.  This is the reason why you don't buy on the payment.

Also, be careful about "sale pending approval."  This is a new-ish scam where they let you take the car home, and then call you and tell you that you didn't qualify for the 0/1.9/whatever rate, and have to pay more.

[tenpenny]

That's when you take the car back, and walk away...........................

[johngenx]

That's when you take the car back, and walk away...

Not that simple.  The contract states that you MUST take the car if they get you approved, even at a higher rate.  The dealer will keep your deposit and could destroy your credit.  Not good.  Better to simply avoid the scam from the get go.

[tenpenny]

That's a nice contract - you have to accept whatever deal we give you....does anyone accept this?  Is this legal?  

I'd like to try that in other businesses.  I can see it working really well.  Like, say, a mortgage.  Here's the house, it's yours, I'll tell you your interest rate later, and you can't say no.

[84im]

And car dealers wonder why the public loathe them.

[Sterling]

There's no reason to loathe all of them. Just the ones that do what John described. They are usually guilty of everything else that people hate too. Unfortunately, these types of places sell lots of cars so they are not likely to clean up their act anytime soon.  

This brings up an interesting point. At what level is a consumer responsible for their own financial decisions? For example, I doubt anyone on this board would rush out to see a dealer that advertised a $30,000 truck for $49/mo. Yet, there are thousands of people who do everyday because they have such a lack of mathematical understanding that they cannot figure out that $49/mo cannot buy a $30,000 vehicle.

It is sad and scary that huge segments of the population can't figure that out for themselves.

[articsteve]

I believe Honda and Toyota finance offers are just that.  Their dealers give no more of a price discount if one chooses to pay cash.  That is one of the reasons they sell so many cars.

The domestic dealers play endless mind games with people and their sales reflect that every year.

The Caviller for $12999. is a classic one. Not eligible for financing and no budging on PDI, Freight and Admin and a zillion other hidden charges.

[Sterling]

Toyota and Honda have their own games. Like offering a great rate of 1.9% on Highlander, 4Runner, and Sequoia. Oops only up to 36 months. So the payment on $40,000 with taxes will be over $1300/mo. Yep that Toyota sure is generous.

[articsteve]

Yes and they list 2.9 for four and 3.9 for five and so what is the deception there?   Take their financing or not it does not effect negoiating price.

Many folks have a 3 year old 15-20K dollar trade in so 3 years at 1.9% is good for them. The point being made is that Honda and Toyota never go 0% and usually range slightly below prime or on it, but never tie that into final selling price.  

I financed an SIR for my son at 3.8 for 5 years and that was way better for me and him.

[sharky]

Yeah, but in the domestic's case, if you read a national ad, put out by the actual brand (ie, DC, GM, what's the other one???) everything is quite clearly explained.  Chrysler even has big "fine" print.  Take an individual dealership's ad (ie. Colombo, Logan, Scarsview, etc.)  and you will see all kinds of misleading numbers meant just to get you in the door.  It's not a question of the domestics being shadier, it's the dealerships that whore out their inventory, and will tell people anything to get them in the door. (ie. $99/bi-weekly...amortized over 96 months-- yowza!)

[johngenx]

The game playing has nothing to do with the make, but the dealer.  That said, there are more ways for the Big Three dealers to play games as their makers have more cash-backs, different rates, and so on.

I've only used captive financing once, through MB Credit Canada, and it was a great experience.  The dealer stepped aside and I delt directly with the financing company, and it was very easy and straightforward.  I would be hesitant to trust the dealer if they were acting as a go-between.  One MB dealer stated that MB Credit was difficult and they would finance me through a different firm.  Smelled bad, that did.  In the end, I filled out a half page credit app, faxed it in, and within 15 minutes they called me back approved.  Did it from home, actually.  Easy as pie.  The first dealer was obviously up to something where they could make more on some different financing.

The last few cars we've bought were cash purchases, and most dealers looked pretty sad when they found out we weren't financing.  I suspect that a great deal of their profit margin can come from the financing.

We've got a couple shady-esque things on the go around here lately.  The classic "with $3000 trade" fine print to explain the great price is aggravating.  The new-ish "sold pending approval" scam is dangerous and legal, meaning people get snared and can't get out.  I have heard many dealers now practically refusing to talk price with financing customers and with loans now going 84 months or more, using all kinds of tactics to sell the payment.  Again, contracts get signed and legal recourse is difficult.

Another one I've heard is life insurance on the loan, and it's another "pending approval" deal.  A friend of mine got caught in this one and ended up costing him about $1500 he hadn't planned on spending.  Kentwood Ford, surprise.

And those "bi-weekly" payments!  Ha!  I can't imagine myself at a dealer that did that.  I would just laugh myself silly as I drove away.  City Ford here advertising super low payments based on a reduced payment for the first few months of the term.  Of course, you pay for it in increased interest, but they don't explain that in the ad.  "Windstar's for only $49 a month" is how they execute that.  Of course, after six months it goes to $500 a month, but don't worry, in six months you'll have won the lotto, right?

Forest Gump: Stupid is as stupid does.

That line could have been penned solely to describe the game played between dealers and "ups."

[wing]

Actually bi-weekly payments work out to being cheaper than monthly as you are paying the interest off sooner.

[johngenx]

Actually bi-weekly payments work out to being cheaper than monthly as you are paying the interest off sooner.

Maybe.  Depends.  If the payment is $100 per month, or $50 bi-weekly, then that is true.  BUT, I have seen more than a few cases where is you figure out what the dealer is offering, the bi-weekly payment turns out to be more than the same lease monthly.  They upped the interest rate and "made it look" better by advertising bi-weekly.

It's still a case of knowing how the system works and making sure they don't put one over on you.