You’ve probably heard about car dealerships offering customers incredible zero-percent financing deals; however, you’ve been warned that there may be some disadvantages to taking this financing route. So who do you believe, those who are warning about potential pitfalls, or your stomach that’s churning in excitement at that thought of zero-percent interest?
Before you make a decision, let’s look at how zero-percent interest can benefit you:
- Lower monthly payments. One major way that this type of financing can benefit you is through lower monthly payments. In fact the whole point of zero-percent financing is being able to take advantage of paying less on your monthly car payments . So of course you expect to get this deal when you see this type of interest advertised.
- Pay only the principal. Every month your car payments is directly paying off the value of the car that you had purchased it for. So in the end you are not paying any interest on the car.
There’s no doubt that having to pay no interest is very impressive. However, there are some potential disadvantages associated with accepting zero-percent financing as well:
Let’s take a look at what some of the disadvantages of zero-percent financing:
- High monthly payments. One reason that you might steer clear of these deals is because the trade-off might be a higher monthly payment. For instance, some dealers decide to insist you pay the car off in a shorter time frame as a trade for paying more interest. So while you may not have interest to worry about, you may have to pay $100 to $200 more per month to get it paid off in time.
- The rate may adjust. Some manufacturers offer zero-percent financing for a specific period of time, after which you’re responsible for a higher rate. This can keep your monthly payment low for a while; but after the rate goes up, how will you pay your the rest of your loan off?
The key to working with zero-percent financing is understanding the fine print and knowing your financial status so that you know for sure what you’re getting doing and if a zero-percent financing plan is feasible for you.