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There are many financing options available for the purchase of a vehicle. These financing options can
vary depending on whether you purchase a new or a used vehicle.
- Do you take a fixed rate or a variable rate of interest?
- What are the terms of repayment available for a new or a used vehicle?
- Are there interest rate discounts being offered through the dealer?
- Are those discounts really that worthwhile?
Finding the vehicle you want is really the easy part of purchasing a vehicle. The real challenge lies in
ensuring you are getting the best possible deal.
These days it is not uncommon to see advertisements promoting 0% financing. But is 0% really 0%? Is it really as good of a deal as it seems? What are you giving up in return for this cut-rate financing?
The following are some things to consider about cut rate auto financing:
- Created by automakers to stimulate new vehicle sales.
- Designed to generate traffic into the showrooms.
- Have restrictions and exceptions: cut-rate financing does not generally extend to a full range of product offerings, and may be limited to specific makes and models.
- Eligibility requirements can be very high. Over and above the requirement of having a spotless credit rating, you may also be required to have a large down payment to qualify.
- Will it mean paying more for the vehicle? Since the dealer earns no profit from cut rate financing, you may end up covering the loss for the dealer somewhere else. For instance, you may have to pay full sticker price in order to qualify. Paying more for the vehicle may offset paying less for financing.
- You may also receive less than fair value for your trade-in.
- If you pay full sticker price for your vehicle because you've opted for 0% financing, you may end up owing more than the market value of your vehicle. Here's why. Suppose you buy a vehicle at the end of the year when the new years vehicles are coming in. The market value of your vehicle has started to depreciate, and it will depreciate even further once you drive it off the lot. Because you've paid full sticker price, there can be a substantial gap between what you owe and the market value of your vehicle (in other words, you owe more on your vehicle than you could sell or trade it in for). This gap could affect you financially if you later trade it in or become involved in an accident.
- You may not get the term or repayment you want.
- Will it cause your monthly payment to be high?
- 0% loans can be for varying terms 2, 3, 4, or 5 years. As a result, your monthly payment could be higher than your budget allows. For many, it is easier to pay smaller amounts over a longer time frame, even if the interest rate is slightly higher. Also, most of the manufacturers financing programs only allow monthly payments with a maximum of a five year term, whereas ECU's loans for new vehicles can be repaid weekly, biweekly, semi-monthly or monthly and can be extended beyond five years if required.
- The dealership will lump the price of the vehicle, the trade-in allowance and the financing together. Whenever you're purchasing a new vehicle, it is critical that you treat the purchase of a new vehicle as a three part process.
Our professionals can lead you through the process with unbiased information and advice and can save you hundreds of dollars on your purchase.
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