| Nearly a decade ago, struggling auto makers | | | | this is a lower priced car, with limited features, |
| began offering 0% financing deals for new car | | | | geared for the low income buyer - low income |
| buyers. | | | | buyers who cannot afford $449 per month in car |
| The goal of these programs were to sell cars and | | | | payments). But, $290 is much more affordable |
| the auto makers hoped that 0% deals would do | | | | than $449 per month (a monthly cash flow |
| just that - and they were right. | | | | difference of $159). |
| Car buyers (currently in the market or not) | | | | The one problem with this financing deal is that at |
| flocked into auto dealerships seeking these | | | | 2.9%, the borrower (car buyer) would have to |
| financing deals. And, while some qualified for them, | | | | pay interest for the 60 months loan. But, what |
| most did not. Once the buyer was in the | | | | does this interest really costs? |
| dealership, the hard sell began - making it nearly | | | | A 17,000 vehicle, with 5% down, at 2.9% for 60 |
| impossible for the consumer to leave without a | | | | months equates too approximately $1,300 in |
| new vehicle - regardless if they qualified for the | | | | financing (interest). If looked at over 60 months, |
| 0% financing or not. | | | | this is about $21 per month. |
| Are these 0% financing deals really all that | | | | But, Ford is also offering, on this same vehicle up |
| beneficial? Maybe? But, for the majority of auto | | | | to $3,000 cash back (not applicable with the 0% |
| buyers they really offer very little incentive - | | | | financing deal). This cash back option would more |
| here's why: | | | | than cover the cost of financing - in fact, this |
| Most 0% financing deals are for only 36 months | | | | cash back option would essentially pay the |
| (3 years). Which is OK if you can afford a very | | | | borrower some $1,700 (in overall benefit) for |
| high payment. Example, Ford is offering a 36 | | | | financing the vehicle and not taking the 0% deal. |
| month, 0% financing deal for their Focus product | | | | That's $1,700 to the buyer's good ($3,000 cash |
| line. A standard Ford Focus is priced around | | | | back minus the $1,300 in financing costs equals |
| $17,000. Financing this vehicle, assuming 5% down, | | | | $1,700). |
| puts a payment around $449 for 36 months at | | | | Interestingly enough, this auto buyer could |
| 0%. | | | | essentially have their financing rate increase to |
| A high monthly payment for a low budget | | | | 6.9% for the 60 months before the cash back of |
| consumer. The only real benefit is that this vehicle | | | | $3,000 losses its financial benefit. |
| buyer would pay no interest over the life of the | | | | The bottom line here is that 0% financing can be |
| loan (provided that the dealer or manufacturer | | | | a good deal provided that other options do not |
| has not built some level of financing into the price | | | | offer better benefits. Instead of just looking at |
| of the vehicle). | | | | the financing rate (where 0% is always better |
| However, Ford is also offering 2.9% financing for | | | | than anything else) one should consider all offers |
| 60 months. The same vehicle (with the 5% | | | | and choose the one that makes the most financial |
| down) at 2.9% for 60 months (5 years) sets the | | | | sense. |
| payment at about $290 per month. | | | | All the above assumes that the purchaser would |
| Much more affordable for consumer who seeking | | | | qualify for both the 0% financing and the 2.9%, |
| to purchase a vehicle of this nature (meaning that | | | | 60 month financing options. |