If you have shopped new cars you will have seen Ford's so called "0%" financing. Is it really 0%? NO! The offer is $2000 OR "0%" financing. In other words you surrender the $2000 to get the O% financing. So if you finance a $20K ST you will pay $22K for the car with the "0%" loan. That $2000 is in effect the interest you pay. In this case your "0%" just cost you 10% of your purchase price. So your "0%" is in reality a 10% loan. A terrible rate if you have good credit. On a $40K loan it works out to a "5%" loan.
The so called "0%" loan is just a prepaid interest loan. Your bank will allow you to pay your interest up front like Ford if you want a "0%" loan from them.
Lesson here.......There ain't no free lunches. The best part is according to Ford financing last year less that 20% of buyers qualified for the "0%" financing. It typically take a 740 and up credit score. If you qualify for the Ford "0%" your bank will probably beat it. To determine what you are actually paying in interest on the "0%" just divide the amount to be financed by 2000. On a 20K loan that would basically be a 10% loan using simple calculations.
A comment from the Finance Manager when we turned down the "0%" was that she advises her "well heeled" (my wife was not even wearing heels!) customers that it is a rip off! And quickly offered much cheaper options that our bank beat.
Caveat Emptor! Buyer beware!
The so called "0%" loan is just a prepaid interest loan. Your bank will allow you to pay your interest up front like Ford if you want a "0%" loan from them.
Lesson here.......There ain't no free lunches. The best part is according to Ford financing last year less that 20% of buyers qualified for the "0%" financing. It typically take a 740 and up credit score. If you qualify for the Ford "0%" your bank will probably beat it. To determine what you are actually paying in interest on the "0%" just divide the amount to be financed by 2000. On a 20K loan that would basically be a 10% loan using simple calculations.
A comment from the Finance Manager when we turned down the "0%" was that she advises her "well heeled" (my wife was not even wearing heels!) customers that it is a rip off! And quickly offered much cheaper options that our bank beat.
Caveat Emptor! Buyer beware!