Auto Basics
auto
Hidden numbers in zero-percent financing

Nothing could be more enticing than free money, and that's what the current round of zero-percent finance deals seem to offer. Remember the adage, "There's no such thing as a free lunch?'' Well, free money is equally suspicious. There are strings and conditions to nearly all such offers from manufacturers.

Aside from the usual requirement of sparkling credit, there are ways in which zero-percent car loans can trip up a buyer.

Most interest-free financing offers require financing terms of three years or less. So you'll have to shell out some pretty hefty monthly payments if you qualify.

Example: Let's say you're borrowing $20,000 to pay for your new car. With a three-year term at zero-percent interest, your family would have to shell out more than $555 per month in car payments. A five-year term at 3.9 percent with monthly payments of $367.43 may be more manageable, even though you have to pay interest.

If you are financing $20,000 ...
Interest rateMonthly paymentsTotal interest
3 years0%$555$0
5 years3.9%$367.43$2,045.71

And some zero-percent offers come with the stipulation that the buyer has to put down as much as 25 percent, whereas most other finance deals can be had with 10 percent or even nothing down, though it's often not wise to cut your down payment to a minimum because it will take longer to build equity. We discuss that issue in the next chapter.

advertisement

Show Bankrate's community sharing policy
          Connect with us
advertisement
 

A little research could save you BIG on interest.

Don't have time? Our rate-tracker tool saves you time and money. Delivered Thursdays.
 
advertisement
Partner Center
advertisement

Blog

Tara Baukus Mello

Chrysler recall for car ignition fix

The Chrysler Group has announced a recall of 349,442 cars for a potential problem that can cause the ignition key to become stuck or inadvertently move.  ... Read more


Connect with us