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| MrT |
 Posted: Fri Jun 02, 2006 2:23 am Post subject: 0% car financing-good or bad? |
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Investing Sr. Associate
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As the topic implies, I am interested in some opinions on getting those 0% or really low car financing deals. I have never bought a car with those incentives, but I have financed with a dealer before, but on cars with good prices, and at rates comparable to a bank
I personally feel that it's a huge conflict of interest to finance a large purchase with the same person you are buying from because the focus shifts from the sticker price on the car to the monthly payments on the car. (Do car commercials even advertise the price of the car anymore? All I ever see is "$0 down and $300 a month for X months!")I have seen car loans upwards of 5-6 years, which is absolutely crazy, in my opinion to seriously get loans that long and expect to still be driving the car, or for it to be worth a whole lot when you are done.
Anyhow, the way I figure, and I haven't found any proff to back myself up, is that the only way a car dealership can afford to give anyone a 0% financing deal on a car is to jack up the price of the car over what they would be willing to see it for if someone came in with cash. Economically, it makes sense that if a car dealership/financer had $20K in cash, they could get at least like 5% return on their money, right? So if they just invested the money for like 36 months, they could have about $23K in cash. I did a quick analysis, and for them to make the same amount of money from a 36 month 0% loan (assuming they reinvested each monthly payment back at 5%), they would have to charge like $599/month on a car loan. So the comparable original value of the loan would be $21500! (599*36). What that means is that the cost of loaning you $20K at 0% is in the neighborhood of $1.5K in today's money. So now the car they would have been willing to sell to you for $20K if you have cash, they would have to sell for at least $21.5K w/ a 0% financing deal to break even.
I wonder if anyone has had any experience out there with a dealer willing to part with a car much cheaper if you buy in cash than with a 0% deal? I know there are probably other factors involved, like I think some of those deals have prepayment penalties that they probably factor in for making a little bit of the money back. (Of course, with 0% on a loan, there is no logical reason to pay it off early unless you need to sell the car, or something)
I think economically it makes sense that the dealer has to charge more to give you 0% financing, perhaps they only give that deal if you pay the MSRP value of the car. Any thoughts or opinions? |
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| lostsoul01 |
| Posted: Fri Jun 02, 2006 5:26 am Post subject: |
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Investing Sr. Associate
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I believe usually the dealership gets a commission from the financing company, if you go with one of theirs. Other than that, I don't believe there is any benefit to them.
I do remember one of that tactics used was to offer 0% OR $3500 instant rebate (just an example), where if you did the math, the $3500 rebate at the offered 3.9% (example) was a better deal in the long run.
Usually when I've purchased a car, I take whatever the dealership gives me, and then refinance within a week or two at the place of my choice. Just make sure there's no prepayment penalty. |
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| vetelmo |
| Posted: Fri Jun 02, 2006 5:38 am Post subject: Re: 0% car financing-good or bad? |
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Moderator
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| MrT wrote: | | I wonder if anyone has had any experience out there with a dealer willing to part with a car much cheaper if you buy in cash than with a 0% deal? |
I used to sell cars, anyone walking in with straight up cash got a great deal. Of course we would try overcome any objections and try to convince them to get a loan because we got a kickback in return from the lender. But at the same time a deal is a deal. A sold car is a sold car.
| lostsoul01 wrote: |
Usually when I've purchased a car, I take whatever the dealership gives me, and then refinance within a week or two at the place of my choice. Just make sure there's no prepayment penalty. |
That is really good advice. 
Here is a couple pointers for buying a car that will also help drive the price down. Go on the last day of the month or go when it's raining and do it around 2 or 3 hours before they close. Trust me, if it's been a slow month, you will be in command of the deal and not even know it so don't be a "lay down"!  |
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| MrT |
| Posted: Fri Jun 02, 2006 6:24 am Post subject: Re: 0% car financing-good or bad? |
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Investing Sr. Associate
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| vetelmo wrote: | | Of course we would try overcome any objections and try to convince them to get a loan because we got a kickback in return from the lender. |
I wonder, were you required to sell the car for a minimum price that was higher than what you would have let them buy it for with cash?
I still maintain that somehow the financer has to make up the lost revenue they would make from giving away a loan at a lower rate than it costs them to borrow. Unless I'm totally wrong, the financer is tied to the auto company, so the most logical price to make up the difference is in the selling price. |
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| Benjamin |
| Posted: Fri Jun 02, 2006 6:31 am Post subject: |
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Administrator
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Well, back in 2003 when I bought my Saturn it was 0% and I have to say I love it. To me it almost feels like free money they gave me just to pick their car.
The purchase price was actually very low and I got even more benefits because someone in my family already owned a saturn and they had a down-payment assistance.
Lets see, with all the discounts and everything my Payment is $220/mo for 5 years and I put nothing down. For a brand new car! I love it!
I really think when they are offering 0% they are just desperate to get the cars off their lots. Be on the lookout for scams, but really it's a great deal. |
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| vetelmo |
| Posted: Fri Jun 02, 2006 6:35 am Post subject: |
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Usually there is multiple lenders the car dealer's use. It's kinda the back door dealings where the lender agrees to accept x-amount of lower percentage deals and in returned they will get y-amount of deals with higher percentage rate deals. Trust me there are a lot more people with poor credit qualifying for 12% to 19% (and sometimes higher!!  ) than there are of people with great credit (or cash). So it ends up being a better deal for the lenders to work with the dealer on the lower percentage rate deals.
Also the lenders sometimes expect to be able to call you up while your eating dinner argueing with wife about the crying kids to make you some offer for a great credit card deal they have for you or if your happy with your current lender for your home, lol! |
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| Grimreaper |
| Posted: Fri Jun 02, 2006 6:46 am Post subject: |
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CFO
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| Benjamin wrote: | Well, back in 2003 when I bought my Saturn it was 0% and I have to say I love it. To me it almost feels like free money they gave me just to pick their car.
The purchase price was actually very low and I got even more benefits because someone in my family already owned a saturn and they had a down-payment assistance.
Lets see, with all the discounts and everything my Payment is $220/mo for 5 years and I put nothing down. For a brand new car! I love it!
I really think when they are offering 0% they are just desperate to get the cars off their lots. Be on the lookout for scams, but really it's a great deal. |
0% isn't gonna generate much interest anymore I don't believe. It was great after 9/11, in fact, it bailed America out! I think we should all thank George W. Bush for the appreciation he has showed the U.S. automakers by basically accelerating putting GM n F on da brink of BK with his policies.  Anywho, GM is making an even bigger mistake thinking that "selective target marketing" is gonna help them move metal. Sure, fokes are basically idiots and they will fall for the programs in Fl n Ca. But trust me, it would be better to forgoe any rebates or 0% financing programs and just do yer car shopping over da phone. Figure out what you want, speak to the general manager at the store in yer town and tell him you are shopping the best deal within 200 miles of your home. Have him fax you some invoices on the car/truck/van you wish to buy. Offer them triple net on any 2006 model (cept high demand stuff like Corvette, caliber, etc.) And offer even less on 2005 left over models. If you are shopping for a new car and ya don't wanna try this just lemme know! I'll do it....and I work cheap! Oh yeah, the next wave of car deals will be el cheapo lease programs. Why pay $450/month to own a $50K car when you can lease it for $300/mo? You already are about to lose 20-30% of yer home value in the next year or 2. Do you really want to lose another $30K on a new car purchase?!!! Of course not! El cheapo leaso comin right up! Watch! |
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| Im Not Warren Buffett |
| Posted: Fri Jun 02, 2006 6:46 am Post subject: Re: 0% car financing-good or bad? |
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CFO
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| MrT wrote: | I wonder, were you required to sell the car for a minimum price that was higher than what you would have let them buy it for with cash?
I still maintain that somehow the financer has to make up the lost revenue they would make from giving away a loan at a lower rate than it costs them to borrow. Unless I'm totally wrong, the financer is tied to the auto company, so the most logical price to make up the difference is in the selling price. |
Selling the car at low or no financing cost is a way to move the unit, which they expect to make money off. Incentives do chew into profit margins, but compared to eating the entire cost associated with not selling it at all, a sweet loan or some cash back can look pretty good. |
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| vetelmo |
| Posted: Fri Jun 02, 2006 6:54 am Post subject: |
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| Grimreaper wrote: | | Oh yeah, the next wave of car deals will be el cheapo lease programs. Why pay $450/month to own a $50K car when you can lease it for $300/mo? You already are about to lose 20-30% of yer home value in the next year or 2. Do you really want to lose another $30K on a new car purchase?!!! Of course not! El cheapo leaso comin right up! Watch! |
That is very true, as long as you know you'll stay within the parameters of the lease (miles, damage, etc) and you also know that you won't want the vehicle any longer than the lease deal. On the front end it's nice but if you don't stay within those parmeters, they get you on the back end. |
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| Grimreaper |
| Posted: Fri Jun 02, 2006 7:05 am Post subject: Re: 0% car financing-good or bad? |
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CFO
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| Im Not Warren Buffett wrote: | | MrT wrote: | I wonder, were you required to sell the car for a minimum price that was higher than what you would have let them buy it for with cash?
I still maintain that somehow the financer has to make up the lost revenue they would make from giving away a loan at a lower rate than it costs them to borrow. Unless I'm totally wrong, the financer is tied to the auto company, so the most logical price to make up the difference is in the selling price. |
Selling the car at low or no financing cost is a way to move the unit, which they expect to make money off. Incentives do chew into profit margins, but compared to eating the entire cost associated with not selling it at all, a sweet loan or some cash back can look pretty good. |
Dealers don't make money selling cars nowadays. In fact, I had a general manager at a big corvette dealership in Ga tell me that they sell so many Corvettes he wasn't even sure what the rest of his inventory even looked like! and he really didn't care because fokes with mo muny than sense were paying $8-10K over MSRP for coupes n convertibles and $20k over MSRP for ZO6's at the time! WOW! So that store made a killing on the 25-30 corvettes they sold each month. Most dealerships make money on servicing your car. If your master brake cylinder on yer new car with anti lock brakes needs replacement....do you know how much you are going to be overcharged for the privelidge of keeping your warranty in effect?!! |
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| thedominator |
| Posted: Sun Sep 24, 2006 6:35 am Post subject: |
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Investing Associate
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| i'd rather buy the car for upfront cash! |
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| kapr |
| Posted: Wed Feb 21, 2007 12:07 am Post subject: |
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| I have taken the 0% financing deal before. It couldn't possibly have had an impact on the price I received, since I did not agree to financing until a price was settled. In my case, the 0% was a manufacturer's incentive. It had nothing to do with a dealer or financing company making money....just a manufacturer trying to move a model. |
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| Dave Rathbun |
| Posted: Fri Mar 02, 2007 6:36 am Post subject: |
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CFO
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| We use 0% financing whenever we can, and whever there are no "hidden" costs. Why not use someone else's money when you can? |
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| e_pang |
| Posted: Fri Mar 02, 2007 11:09 am Post subject: I have a question |
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Investing Sr. Associate
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| Here is a questions though, is a car payment or loan a good debt? |
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| Dave Rathbun |
| Posted: Fri Mar 02, 2007 11:17 am Post subject: |
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CFO
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Not if you pay interest, no.
But if it's true 0% interest with no hidden costs, it's a great deal.
Suppose you pay $20K for a car. That's $333.33 a month for five years. No interest. If you pay $20K in cash up front, you're done. But if you pay over 5 years, and you have the cash in hand, then you can be earning interest yourself, and simply withdraw $333.33 a month to pay off your car. Essentially you are loaning yourself money to pay for the car, and earning interest during the process.
Now if you don't have $20K sitting around to pay for a car, it's still not a bad deal other than you don't have money earning interest for you. You're still not paying interest, which is a good thing. |
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