Buying a new car can be very exciting, and often very important for your business. So when car dealers offer new cars with a zero percent comparison rate, the excitement of getting a good deal on a new car can be irresistible. Many people get sucked in by this excitement, but zero percent interest on a car loan might not be the great deal that it seems to be.
What are comparison rates?
Comparisons rates show what the true cost of a car loan is. This includes the interest rate and any other fees or charges that are associated with the loan. Whenever you are comparing two different loan options, always use the comparison rate so that you know you're comparing apples with apples. This will help you make sure you get the best value out of your car loan.
Isn't a zero percent comparison rate good?
Theoretically, yes it is. A loan with a zero percent comparison rate is the cheapest loan possible because you won't be charged any interest. However, nobody gives finance away for free. The reason that car dealerships can offer you a car loan with a zero percent comparison rate is that they artificially inflate the price of the car in order to pay for the finance.
The way this works is that a lender will provide finance for the car through the dealership at zero percent interest, and the dealership will pay the lender back for the interest that the lender is not receiving from the car buyer. Since the dealership is essentially paying your interest rates for you, the price of the car needs to be higher than it normally would be so that they still make a profit after paying the lender back.
In practice, a car that ordinarily sells for $19,990 drive away with regular financing might be offered by a dealership for $24,990 drive away with zero percent interest rates. If you bought the car for $19,990 and paid an interest rate of 8% over three years, the total cost of the car and the interest on repayments would amount to $22,449. This is $2,541 cheaper than the zero percent finance option! Car loan calculators are a useful tool to find how much your loan will actually cost you.
Things to look out for when buying a car
Zero percent comparison rates are a way for car dealers to increase their profits by marketing their cars differently. They do this by trying to sell you on how much the loan repayments will be instead of the total price of the car.
When buying a new car, always look out for the following:
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* What is the total repayment price? This includes the price of the car and the interest on repayments, if any.
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* Don't just look at what the monthly repayments will cost.
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* Always compare the total repayment price offered by the dealership with finance options available elsewhere.
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* Ask if the zero percent interest rate is attached to the price of the car or if the car's price is negotiable as well. Most dealerships won't allow you to negotiate the price of a car and get zero percent interest. A spokesman from Quality Appliance Repair Perth says "as a business owner, I obviously want the cheapest option. When finding a good rate for my appliance repair fleet, I didn't end up going with a 0% interest rate. After looking into it, the hidden fees were more than the 4% rate I was offered."
Other options for car finance
Car loans options can be complex and difficult navigate, but it pays to get car finance that suits your needs instead of going with the one and only option offered by car dealerships. Finding finance through a lender or finance broker will give you many more options to make sure you get the best deal for you circumstances.
Other loan options include:
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* Early payout
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* Fixed or variable interest rates
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* Secured or unsecured loans
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* GAP insurance
Talk to an expert on car loans, not just a car dealer, to find out all your loan options so you can choose the right kind of loan for you. That way, you'll have the option of getting a better deal.
