What are 0% Finance Deals and Why Have They Become Unpopular?
Want a brand new car, but don’t have the money to buy it? Well, you can always rely on 0% financing deals which allow people to make a big purchase without having to pay the cash up front. Sounds incredible, doesn’t it?
Deal too Good to be True
With a 0% financing deal, you can purchase a brand new car and pay for it in small increments at no cost at all, instead of having to save up before buying. This sounds like the perfect financial solution for making big purchases, but you might want to read the terms and conditions of the contract before putting your signature on the dotted line.
But if 0% finance deals sound too good to be true, why aren’t more people attracted to them? According to Shaun Armstrong, from auto finance provider Creditplus.co.uk, the problem with this finance program isn’t that it is a scam. But most people don’t qualify for it because of poor credit history. The biggest catch to 0% finance program is that it often requires borrowers to put down a hefty deposit in order to secure the deal. Some even ask for as much as 40% deposit, although this isn’t the case with every 0% finance deal.
In other words, the term ‘0% finance’ is merely an advertising tactic to lure in people who later find out that such deals can actually be really expensive. Most people who don’t qualify for a 0% finance deal are more likely to choose a different dealership which charges higher interest rates. And once you’re in the talks about getting the financing, it can become much harder to walk away from the deal.
You might want to shop around at different dealerships to check the true price of the vehicle. Most dealers add up the total interest to the car’s actual value and prepay that amount on the loan on the customer’s behalf. If you do your research on the car’s actual price, you should be able to tell if there is any uplift in price with the 0% offer.
Zero-Percent Finance Becoming Unpopular
Interest rates have been ticking up nationwide and with inventory levels healthier than ever, 0% finance deals are becoming less popular. A recent report by Edmunds showed that auto sales from these deals have dropped to lowest levels in the past 10 years. Just 6.92 per cent of new car purchases were financed by zero-percent deals in the month of July, according to the report. This number was much lower than last year’s 11.3 per cent and represents the smallest proportion of car purchases since 2005.
Edmund’s industry analysis manager, Jeremy Acevedo, said in an interview that zero-percent finance deals much less pervasive today than they were a year ago. Data from the report showed that the number of people who used these deals to purchase cars have been slashed by half over the past 12 months. Acevedo says that automakers are now keeping a good mix of in-demand vehicles in their inventory which sell easily without any incentives. Zero-percent deals still exist on some vehicles like sedans which are considered less desirable.
General Motors, which was the first automaker to offer zero-percent finance after 9/11, has also slowed down with the practice this year as rising interest rates are making these deals less cost-effective. The company now offers a number of different incentives for people looking to lease automobiles, whereas those who want to buy can avail direct discounts rather than complicated interest rate systems which differ from buyer to buyer.
GM’s spokesperson says that it’s much easier to advertise a 10 per cent discount than a zero-percent finance deal with too many terms and conditions. The current annual percentage rate stands at 5.74 per cent, up from 4.77 per cent last year, and it won’t be going down anytime soon. Interest rates are at a nine-year high which makes zero-finance deal undesirable, not just for the dealers but also for the buyers.
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