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June 16th, 2008

You feel like buying a rather expensive car this summer. But there is a problem - you are not a wealthy guy. Do not loose heart. You have a choice of a range of best deals on offer in the automotive market, popularly described as zero percent finance for cars. How does this work and are they really for you?

Offers

Almost all car dealers who offer a zero percent finance,have a sales plan in place. They will have outlined a profile of the prospective customer. It requires only common sense to realise that good credit standing is a must to qualify. SO, normally such offer will be made to existing customers. New customers will have to pass checks on several parameters like, income, location of the customer, employment or business status, or even the assets that the customers own. Quite logically, credit term is usually shorter than the normal regular interest credit scheme, often below 2 years. It will result in higher EMIs - equated monthly installments.

Terms

EMIs always change in inverse proportion to duration of the loan - shorter the term of credit, the higher the amounts payable per month and the longer credit period, the smaller amount to be paid per month. Incidentally, longer duration will result in a bigger total payoutsimply because interest rate is induced for a long period of time. You will find that you will have paid more than 20 times the retail price. Also, failure to pay the monthly payables of the zero percent credit term will result in higher interest after that as a penalty for not paying on time. In such eventuality, you will actually end up paying higher than the amount paid under zero percent because of the interest and other penalty charges. Finally, cost of the car itself is more than the one for cash payment. For example in a zero percent scenario, the car is offered at say $100,000 on display for 2 years to pay having a monthly payable amount of $4,166. The $100,000 price is actually still higher than the actual value of the car. The car dealers usually know that the car value is only say $70,000 but if offered at zero percent credit, they would price it at $100,000.

Remarks

The zero percent finance car is a good marketing strategy for the car dealer. It is also beneficial for the customer who can afford it. From the foregoing you will wonder, and rightly so, what advantage does zero percent finance car give you the as the customer. On the other hand this is certainly a good marketing strategy for auto dealers. It always better than paying longer credit period. If you can fulfill the requirements, you will also make gains.

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