Conceptually, 0% financing sounds like a great way to finance the purchase of a new car. You can borrow money for free, choose exactly the car you want and save some money from interest for some other expenses. On the surface it does sound like a good deal, but there are dangers of 0% financing you need to consider before signing on the dotted line.
The first thing to know is whether or not you can actually qualify for the promotional zero interest incentive. If you do not qualify and go into the auto dealership unprepared for that reality, you may end up financing directly through the dealer and paying a substantially higher interest than you originally planned for in your budget.
Another possible danger of 0% financing is that the amount of time associated with paying off this loan may be causing you to pay more over the life of the loan, especially if the 0% is an introductory rate. The monthly minimum payments for this debt may be substantially higher than you initially thought.
By choosing a 0% financing offer, you may also be eliminating other promotional offers from the table that may be better suited for your needs. In some rare cases, if the ticket price of a car is high enough and a substantial ($5000) rebate offer is on the table, you might actually save more money opting for a conventional loan than choosing the 0% finance option.
Another danger of 0% financing is showing your hand too early at a car dealership. If you walk right in and say you want to take advantage of that offer, you may end up losing your power of negotiation for the basic price of the car. Financing and price are two different things after all.
No matter what financial means you choose to purchase your new car, there is always basic advice to follow. Know your credit score before going into the dealer, arrange financing before getting to the lot (even if you want to take advantage of their promotional rate), and read the fine print before signing anything.
