Auto 0 financing
Auto 0 financing is a term that is used for the auto finance that is provided at 0% interest rate. Though it is quite uncommon to hear that a person gets financial facility for buying auto without any need of paying interest, there are of course some lenders and auto dealerships that provide auto 0 financing. No doubt, this term is very attractive as it allows a person to defer whole payment for buying auto up to several years and that too without any interest obligation, there are certain aspects that are required to be understood completely.
Announcing of auto 0 financing is not a new concept. Auto dealerships, with the help of auto manufacturing companies and local lending institutions, have been providing this type of finance facility for many years. For example, in the year 2003, General Motors announced 0% financing of almost all its makes. If a person did wish to take any finance for buying auto, he could get the benefit in form of rebate up to $3000. This decision was followed by similar decisions from Ford Motor Co. and Daimler Chrysler. These companies announced 0% finance for boosting vehicle sales that were dropping in a great manner. Now the question arises why a person should not go for these 0% offers? The answer lies in the fact that automobiles are depreciation assets. Percentage of depreciation differs from one vehicle to another. In some vehicles like autos and trucks, depreciation rate is 20% whereas there are some vehicles in which depreciation rate is 40%. Sometimes, companies also put some restrictions for getting 0% finance. For example, auto dealership may provide this type of finance only when autos are bought on the lot. Even it has also been seen that there are
some auto dealerships that increase the price of automobile before providing 0% finance. This is done so as to cover the interest lost through the deal. Due to above reasons, auto financing experts always recommend that offer of auto 0 financing should be properly evaluated very autoefully. As per the survey conducted, less than 10% of people were actually able to get the benefit of 0% financing offered from auto dealerships. It is believed that if a person is able to get 0% financing through any financial institution like credit union rather than auto dealerships, it is better. Since no money is made by dealerships while providing 0% finance, these always try to provide higher rates. Most common reason for not providing 0% finance as told by auto dealerships is that borrower has not qualified for the 0 auto financing or they say that 0% financing is not available on the type of automobile chosen by a person. It is the discretion of auto dealerships only to determine which automobiles should be offered for 0% finance.
While providing 0% finance, auto dealerships require a person to repay the loan amount in generally less than 3 years. Maximum repayment period allowed by most of financial institutions in case of automobile finance is generally 7 years. When finance is provided for a period of 3 years of less, monthly repayment obligation of a person increases and he is required to pay big amount. In many cases, it is not possible for a person to pay such big amounts and auto can be repossessed by auto dealerships also. Thus, it is always advised that while getting vehicle through 0% finance, a person should closely look at the present and future sources of income as well as expenses to ensure that he would be able to make repayment in time.
There are some fine prints about auto 0 financing also. In almost all the cases, 0% financing is done to those people that have excellent credit rating. Criteria for excellent credit are determined by each auto dealership separately. Similarly, auto dealership also increase prices towards loan insurance and extended warranties while providing 0% finance. Even some can charge a hefty application fee for providing above type of facility. Such dealerships also impose heavy pre-payment penalty. Thus, a person is not able to repay the loan earlier despite the fact that he has sufficient money to do so. Last but not the least, some auto dealerships also require a person to pay off more amounts towards front loaded interest. This results in borrower carrying a large principal balance.
New auto dealerships often offer 0% financing with unusually low interest rates. This is done as a special promotion. It has been observed that general public that is interested in buying automobile has been mesmerized by low interest rates, with major manufacturers offering auto 0 finance. These teaser rates are offered to public for increasing sales in a dramatic way. Pricing generally change from one dealership to another. If careful study of giving up the rebate given by manufacturer is compared with 0% finance, it would be found that there is no big gain made through 0% finance offer. Choice can also be restricted as dealerships provide 0% finance on those models only that are moving very slowly or on those colors that are not liked by people in great numbers. Buying new auto without any freedom of choice is like buying used vehicle with no choice. Clearing unmoved stock is the biggest target of any dealership and it is cleverly done by means of providing finance at 0% interest rate.
Financial experts feel that 0% finance offers of auto dealerships is nothing more than bait and switch tactics used by the companies for increasing their sales. Declaration or advertisement about 0% finance is enough to bring a customer into the showroom and rest work is done by the sales executive. In most of cases, a person would end up in buying auto without 0% finance. It is advised that a person should never get thrilled by the auto 0 finance offer and should apply his prudence while paying finance charges, processing fee and other such expenditure items.
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