How Much Can I Save With A 0% Auto Loan?
Yesterday I announced that Ford is unveiling a rather incredible 0% for 72 months promotion on most models beginning this Friday the 13th as part of their President’s Day weekend sale. This is a huge saving for our customers, especially when you consider that the savings you make on this financing package kick in after you negotiate your best price. I also mentioned that, in part, we can thank the economic downturn for savings of this order, because, in all likelihood, without the downturn Ford would not be putting this much money on the table.
The question today is how much can you save when you get 0% from a manufacturer? BTW, a word of caution about some of the 0% offers you find advertised in your local newspaper. If the APR incentive does not come from the manufacturer it may not be a real saving to you. In other words, a local dealer will often pass along the cost of lowering the interest rate by raising the price of the vehicle from what they would normally sell it for. This can result in an effective – and unofficial – two-price system: a higher price for financing with 0%, and a lower price for cash or a regular financing rate. As a consumer you can catch this marketing ploy by reading the fine print of the advertisement. It may say something like: “Dealer participation may affect selling price.” As usual, consumers need to be at the top of their game, and as always – buyer beware.
However, when an auto manufacturer advertises a low APR it is a real saving to you because you are able to negotiate the price of the vehicle completely independent from the interest rate on the loan.
What kind of savings are possible with 0% financing? Let’s take the example of someone borrowing $20,000 over 72 months (6-years). Further, let’s compare a 0% loan with a regular loan that has an interest rate of 6.99%. This is one way of calculating the difference:
Loan #1 – Borrowing $20,000 @6.99% over 72 months has a monthly payment of $340.88.
Loan #2 – Borrowing $20,000 @ 0.00% over 72 months has a monthly payment of $277.77.
How much do you save over 72 months? $340.88 less 277.77 = $63.11 is what you save per month. Multiply this times the 72 month term of the loan and your total savings are:
$63.11 x 72 = $4543.
Wow. Over $4500 savings on just the financing. This kicks in after you negotiate what should be a low price for the vehicle itself. And with the Ford promotion that begins this Friday you may get additional cash back (up to $1,000) depending on the model you are interested in.
0% financing can save you a huge amount of money. Negotiate your best price first, and make sure the incentive comes from the manufacturer – or be very careful so you don’t end up paying more to get less.
Questions? Email me at james@BayAreaCaGuy.com
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