Author Topic: 0% financing question (Read 1164 times)

stevek · « **on:** August 24, 2011, 07:35:06 pm »

In another forum, on Sympatico, a poster asked which car companies have 0% right now. The expert guy replied:

Sorry to tell you Robb but there is no such thing as 0% financing. The next time you are at a dealership that's advertising it tell them you are paying cash, even if you really aren't, and negociate your price from there. Once that price is set tell them you changed your mind and will finance at 0%...the first thing they'll tell you is you can't do that. Then ask them why? LOL!!!! If you are with an honest sales person, he/she will tell you the truth...they'll be sheepish about it but they will tell you. The not so honest ones will end negociations and walk away...or show you the door!

Is that true, do they only offer 0% when they can charge a higher price? And if so, how does getting a low rate compare to the current employee pricing offers?

initial_D · « **Reply #1 on:** August 24, 2011, 07:57:30 pm »

I think it is more like less discounts for the purchase price with 0% finance.

Cord · « **Reply #2 on:** August 24, 2011, 08:20:06 pm »

I think that response is based on really old information. I don't know about other brands, but I do have some experience with Ford. Ford used to (as in 10 years ago) structure it's incentives like this:

Price $25,000, then choose either a) $3000 rebate or b) 0% financing. So, you could've said that 0% costs $3000.

Ford doesn't offer either/or rebates and finance rates anymore. (I seem to remember it was some kind of legal issue forced the change but I have no evidence of that). These days, if Ford offers 0% (which they haven't for quite a while now) the price is the same whether you take the 0% or write a cheque.

This should be easy to check for other brands. Just do a build & price on their site and see if it gives you a choice of lower price or lower rate.

johngenx · « **Reply #3 on:** August 24, 2011, 08:27:51 pm »

Subaru has a "cash discount." That means if you take their financing, you don't get the cash purchase discount. So, this does add a cost to taking the financing, and needs to be considered when choosing to finance through them or another source.

Jaeger · « **Reply #4 on:** August 24, 2011, 08:36:36 pm »

Quote from: Cord on August 24, 2011, 08:20:06 pm

I think that response is based on really old information. I don't know about other brands, but I do have some experience with Ford. Ford used to (as in 10 years ago) structure it's incentives like this:

Price $25,000, then choose either a) $3000 rebate or b) 0% financing. So, you could've said that 0% costs $3000.

This is exactly correct. It's usually an either / or option, but the 0% is for real. The longer you plan to finance, the greater the net savings through 0% financing. But if you weren't planning to finance at all - or else were going for a very short term, the cash discount will net out to a better deal.

But 0% doesn't mean you must pay full list price - you still negotiate your best price - you just don't get the really big pile of factory-to-dealer cash.

Jaeger

Julie · « **Reply #5 on:** August 24, 2011, 08:39:14 pm »

The manufacturers are subsidizing the 0% somehow, right? You can't borrow money for 0% anywhere.

Either they swallow the costs or you do. Ask them what would happen if you paid cash. If you get a lower price, then you know whether the 0% is "real" or not.

I think really good deals can happen if they really want to move a product. But there's usually some underlying reason why they want to move it. And if you get a significant discount off the car new, I suspect it will also affect the used prices of those cars.

johngenx · « **Reply #6 on:** August 24, 2011, 08:57:09 pm »

Here's the thing about 0% versus a lower price. If the manufacturer is offering 0%, but no cash discounts, then the dealer has to eat any price drop you might ask for in lieu of 0% financing. The dealer's margins are usually much thinner than the subvented financing cost.

AP · « **Reply #7 on:** August 24, 2011, 09:13:43 pm »

It is indeed true that 0% financing is often a misleading advertising ploy b/c consumers are often (though not always) required to choose between 0% financing or a lower price.

Courts have ruled in Ontario that where a consumer must give up a cash discount to get 0% financing the advertisement must express the price differential as an interest rate. Read the fine print carefully on auto ads and you will notice that they reference an "effective rate of interest". This is the interest rate implicit in the given up cash discount.

And people say law is boring...

airbalancer · « **Reply #8 on:** August 24, 2011, 09:33:00 pm »

when I got my truck I got cash rebates from GM and TD was offering 3% for up to 84 months

mmret · « **Reply #9 on:** August 24, 2011, 10:22:10 pm »

Its basically a marketing gimmick. I wish they would just advertise realistic rates and take the games out of it. Make it simpler for the cash buyers instead of forcing them to take subvented financing.

Cord · « **Reply #10 on:** August 24, 2011, 10:29:05 pm »

Quote

Make it simpler for the cash buyers...

What cash buyers?

CanuckG35 · « **Reply #11 on:** August 24, 2011, 10:44:05 pm »

Quote from: Cord on August 24, 2011, 10:29:05 pm

Quote
Make it simpler for the cash buyers...

What cash buyers?

LOL. What would you estimate the percentage of cash buyers you see? I'm guessing less than 5%. For the record though, I lease for my DDs due to the business tax write offs but pay cash for my toys.

mmret · « **Reply #12 on:** August 24, 2011, 11:23:28 pm »

Quote from: Cord on August 24, 2011, 10:29:05 pm

Quote
Make it simpler for the cash buyers...

What cash buyers?

Just can't win.

johngenx · « **Reply #13 on:** August 24, 2011, 11:28:24 pm »

Quote from: Cord on August 24, 2011, 10:29:05 pm

What cash buyers?

No kidding. We've paid cash for the last bunch of cars that we've bought, but I sure see how tough that is for most folks. With my (now) teaching salary vs. (no longer) executive salary, it's VERY difficult to save enough for a new car. Okay, we don't exactly live poorly (two big trips this year, etc) but we used to be able to do that stuff and toss enough into the "car account" to buy a new car when wanted/needed.

tpl · « **Reply #14 on:** August 25, 2011, 05:54:59 am »

Quote from: Cord on August 24, 2011, 10:29:05 pm

Quote
Make it simpler for the cash buyers...

What cash buyers?

We paid cash for our last two cars and will continue to do so in the future. Now we are retired we like to earn interest rather than pay it. However, if interest rates on cars are still close to zero when the next car buying window opens...maybe we'd borrow.

airbalancer · « **Reply #15 on:** August 25, 2011, 06:15:27 am »

Quote from: CanuckG35 on August 24, 2011, 10:44:05 pm

Quote from: Cord on August 24, 2011, 10:29:05 pm
Quote
Make it simpler for the cash buyers...

What cash buyers?

LOL. What would you estimate the percentage of cash buyers you see? I'm guessing less than 5%. For the record though, I lease for my DDs due to the business tax write offs but pay cash for my toys.

Really no better writes off with leasing compared to buying, as far has I know
I will not lease a truck because of the wear & tear on the body

Jaeger · « **Reply #16 on:** August 25, 2011, 06:52:42 am »

Quote from: AP on August 24, 2011, 09:13:43 pm

It is indeed true that 0% financing is often a misleading advertising ploy b/c consumers are often (though not always) required to choose between 0% financing or a lower price.

Not quite correct. The buyer is required to choose between 0% manufacturer-subsidized financing and the big factory-to-dealer cash discount (2,3,4k). They can still choose 0% and negotiate "a lower price" - as in lower than MSRP. Depending on how much is being financed for how long, the 0% plus negotiated discount might be better than the big pile of manufacturer cash on the hood. A buddy of mine at the office just bought a Genesis Coupe and went for 0% plus got a quite reasonable discount from the dealer.

And conversely - opting for the "cash" discount doesn't mean you have to actually buy with cash. You can still finance - just not at 0%. That's how it worked when my sister bought her Santa Fe - she took $4k from the manufacturer, a further negotiated discount from the dealer, put some money down and financed the balance at 3 point something per cent for 4 years. She made out like a bandit.

Best approach is to negotiate your best price from the dealer, then select the manufacturer subsidy that will benefit you most. Or put another way - settle on the price of the meal, then pick either apple pie or ice cream for desert.

Jaeger

AP · « **Reply #17 on:** August 25, 2011, 08:04:21 am »

Quote from: Jaeger on August 25, 2011, 06:52:42 am

Not quite correct. The buyer is required to choose between 0% manufacturer-subsidized financing and the big factory-to-dealer cash discount (2,3,4k). They can still choose 0% and negotiate "a lower price" - as in lower than MSRP. Depending on how much is being financed for how long, the 0% plus negotiated discount might be better than the big pile of manufacturer cash on the hood. A buddy of mine at the office just bought a Genesis Coupe and went for 0% plus got a quite reasonable discount from the dealer.

The dealer is presumably not influenced in terms of negotiated transaction price by whether the consumer goes with a manufacturer cash discount or the manufacturer 0% offer. If I am right, then your point is a wash because it remains the case that the foregone manufacturer cash incentive is an implicit interest charge. You get no more or no less negotiating room depending on what manufacturer incentive you choose, or so I assume.

Jaeger · « **Reply #18 on:** August 25, 2011, 11:56:55 am »

Quote from: AP on August 25, 2011, 08:04:21 am

The dealer is presumably not influenced in terms of negotiated transaction price by whether the consumer goes with a manufacturer cash discount or the manufacturer 0% offer. If I am right, then your point is a wash because it remains the case that the foregone manufacturer cash incentive is an implicit interest charge. You get no more or no less negotiating room depending on what manufacturer incentive you choose, or so I assume.

Nope. You said that the choice is either 0% OR a lower price. It isn't. You make your best deal on price - then choose either 0% OR factory cash. So you CAN get 0% AND a "lower price". Or a negotiated discount plus factory cash.

It's true that you have no more or less negotiating room regardless of which factory offer you choose - but there is no "implicit interest charge". If you take the 0% deal, you divide your total out the door price by the number of months financed and that is your payment. Period. No interest. Cost of borrowing = zero.

If you choose the additional cash back, you take that additional amount off the price, figure out your payments with interest over the chosen term as per normal.

There's nothing hidden, implicit, misleading or deceptive - it's a choice - and a pretty damned good one. You choose to finance a larger amount over a longer term, 0% is a huge savings. If you are financing less over a shorter term, $4k off is a major league discount. One or the other will prove better for a given buyer, but they are both good. REALLY good.

I don't see where the confusion or controversy is coming from. Manufacturers do this to help dealers clear old stock so dealers will load up with more new stock. Simple as that. If you're in the market for a car that this appllies to (as my friend and sister were with their 2011 Genesis Coupe and Santa Fe, respectively - you are sitting pretty.

Jaeger

AP · « **Reply #19 on:** August 25, 2011, 12:06:39 pm »

Quote from: Jaeger on August 25, 2011, 11:56:55 am

You make your best deal on price - then choose either 0% OR factory cash.

Right...except that it is wrong.

Example:

You negotiate, say, a $25k purchase price. You then choose between 0% financing or, say, $3,000 factory cash. If you choose the 0%, you gave up the $3,000 factory cash. Getting the 0% cost you $3,000. This is disguised interest.