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You see it on TV, you hear it on the radio, and you read it in the newspaper. Are savings really passed on to the consumer? Are dealers really giving away free use of money?
First of all, the GOAL for dealers is to "Make Money." This is what they are in business for. Whatever it takes to get you to their showroom floor is fair game in the business world.
So how can dealers afford to offer 0% APR loans? "quotes are from newspaper ads"
- Manufacturing incentives/rebates are kept (read the small print, and listen to the fast talk at the end of commercials), "rates in lieu of rebate"
- Loan terms are generally shorter (this makes your monthly payment higher), "special interest rates vary with term and model"
- Actual APR rate depends on your credit rating (ie. risk based), "as low as 0% APR with approved credit only." National statistics reveal that less than 15% of applicants receive 0% APR.
- Often limited to "on hand" dealer stock, which means you may pay thousands more for features you do not require, "rates apply to select vehicles"
- Available on slower moving stock which translates to a lower resale value, "all offers good date of ad only"
- Pricing often based on MSRP which is Manufacturers Recommended Pricing rather than actual invoice. "financing based on MSRP," The gap between MSRP and invoice could be thousands of dollars.
- Trading off the rebate for low APR, means you must keep the vehicle for the full term to come out possibly even. If you decide to trade the vehicle in short of the planned financing term, the trade-off rate savings in leu of rebate can never be recovered.
So what is in it for the dealer?
More profits, since they generally receive a higher effective rate after keeping both your rebate and manufacturer incentives. Take for example, a 0% APR loan where the dealer keeps your $3,500 rebate*. If you are in the marginal tax bracket of 28%, borrowing $25,000 for a 24 month term, using SECU's lending (6.2 APR)* and savings (3% APR)* rates, the dealer pockets $1,890 of your money by selling the 0% APR financing deal. Feel free to check the math by using our Loan Rebate Calculator.
What if you decided to prepay your 0% APR loan due to a business transfer? Guess what, by giving the dealer your rebate money up front, you have effectively forfeited the full term of interest payments. This costs you a 100% interest prepayment penalty. Not to mention that you may have already paid "over market" MSRP prices.
How about using the rebate for loan downpayment? If you use the SECU Loan Calculator, you will find that your total loan (interest) expense is $1,420 (using same parameters discussed above). A $2,080 ($3,500 - $1,420) savings, simply by keeping the rebate and financing at SECU.
SECU current rates are posted online allowing you to compare which financing arrangement is better. You will most likely find that SECU offers much more competitive financing, as well as Payment Protection, GAP and Extended Warranty programs.
Where should you shop? Visit AutoConnection.com for a trusted Credit Union friendly dealer in your area.
*Rebates, conditions, and rates may vary. Contact your SECU loan officer for current rates and additional information.
Disclaimer: Please note that by selecting any of the 3rd party website links above, you are leaving the Schlumberger Employees Credit Union "SECU" website. SECU is not responsible for the content on these 3rd party websites or for any claims, lawsuits, or loss associated with using any of the above vendors products or services. Privacy and or security may differ from that of SECU's policy's. The links and information above is only listed for members convenience and ease of information access.
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