The Pros and Cons of 0% Financing

Jun 15, 2015 ​

When it comes to getting an auto loan, look carefully at all your options. What initially looks like a great offer may end up costing you more in the long run.

“0% is good on long-term loans.” Ask up front about the loan term lengths available with 0%.
“0% is available for the car I want.” The vehicles offered at 0% might be greatly limited. Usually the most popular vehicles and new models are not available at that rate. Research whether you can obtain 0% on your vehicle choice.
“I can use the cash rebate and 0% financing to save more money.” Most auto dealers offer a cash rebate or an interest-free loan, not both. If you opt for the financing, you can lose thousands of rebate dollars. Check the examples (below) to see how you’ll save more money on the rebate.
“I’m sure I’ll qualify for 0%.” Not everyone qualifies for 0%. It’s often reserved for those with the best credit. Research first to see if you meet the requirements.
“With 0%, I don’t need to worry about the price of the car.” 0% financing may sound like the best deal possible, but often you can save even more by negotiating your vehicle’s final price and taking advantage of additional offers.

Research Your Options

As a credit union member, you are probably aware of the many benefits your credit union offers, including low interest rate auto loans and great service. Look into your auto financing options before you visit a dealership and you may find that, when using your credit union’s low percentage rate, you may also qualify for manufacturer rebates.

Here are some examples to illustrate calculating your options:
  • Say you’re considering a 36-month term on a $22,000 vehicle at 0% financing vs. taking a $2,000 rebate and a credit union loan at 1.99%. If you chose the 0% finance option, your payments would be $611 per month. If you select the rebate and the low interest rate option, your payments would be $573. You pay less per month, and overall, than if you took the 0%.
  • By taking a rebate, the price of the vehicle drops and the monthly payment drops. Since you are reducing the amount that you are financing, and you’re benefiting from your credit union’s lower rates, your overall costs are lower than if you had received the special factory financing.
  • Even if you qualified for an interest rate of 3.49%, you still pay less: $586 per month and almost $1,000 less overall less than the 0% deal.
  • Let’s try another example. What if you took a 48-month term on a $19,000 vehicle? Taking a $2,500 rebate lowers the cost of the vehicle to $16,500, lowering the monthly payment, vs. taking the zero percent with no rebate. With 0% financing, you pay $396 per month. With the rebate, you’d pay $358 per month. That’s $40 back in your pocket every month and a savings of $1,820 overall ($2,500 – 680 = total interest).

Try the auto calculators to see more details or enter your own numbers.

Apply today, or call us for pre-approval on your next car loan at 505-889-7755 (800-347-2838 outside the Albuquerque area). Or check CUDL AutoSMART to research pricing information, locate a dealer, receive price quotes from participating dealers, or configure your dream car.

Some information in this article was derived from CUDL AutoSMART material.

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