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0% Financing on New Cars

Scholasticus K
Many people do not believe their eyes and ears when they see or read the words, '0% financing'. Zero financing for new cars is a comparatively new concept and involves favorable credit terms for consumers who wish to buy a new car. However, the conditions that qualify people for 0% finance are rather stringent.
Nowadays, it is fairly common for car manufacturers to provide 'car financing' or 'car loans' for their customers. In some cases, dealers and vendors also provide such services, and it has been observed that up to a third of all auto sales in the U.S. are through zero financing options.
The concept is fairly simple; a customer can buy a car from the company by paying an amount as down payment. The company provides an auto loan to the consumer, with the car itself as a collateral or security. On the whole, it works exactly like an auto loan.
An important variant of this kind of auto loan is the 0% finance loan. This is the kind of loan where no APR (Annual Percentage Rate) or Interest Rate is charged upon the loan. It's an interest-free loan.
  • What's the catch: There is a small catch though. One needs to pay all generating, processing and loan transaction fees for the loan, it is not entirely free. Late payment fees and other fees associated with installment payment are also imposed.

Conditions for 0% Finance

The conditions are several and strict, which is the reason why not many qualify for such financing. Now, this loan or finance is provided either by the car dealer or the manufacturer. However, financing by the manufacturer has become quite common.
  • As always, a good credit rating and score - the primary requirement for a loan or financing. Depending upon the manufacturers, the required credit score ranges may be 650, 700, or even 750 (as per FICO scores). A rule of thumb - costlier the car, more is the required credit score. A score ranging from 680 to 720 will get you a good finance.
  • Employment or regular income is another condition which the company demands. This condition is followed pretty strictly.
  • The company will have a right to lien on the automobile, that is, it will be a collateral or security till you repay the entire loan. In circumstances where the loan is not paid, the car would be confiscated to recover proceeds.
  • Apart from the credit report, companies tend to check some other details such as other liabilities, the original cost of the car, and even its upkeep. Basically, they want to determine whether the person is financially capable of taking care of the car and its upkeep.
In this process, the ratio between a person's annual or monthly income in comparison with the cost of the car is take into consideration. A large number of liabilities may lead to rejection of the loan application.

Some Alternatives

There are various, simple ways of availing the facility of 0% financing on new cars. The best way to qualify for such a zero percent interest rate scheme is to rectify your credit score and credit rating.
The first step to improve the credit rating is to pay off all the possible bills that are payable. You may also sell off your previous car and pay off any pending loans. The second effective step that you can initiate, is to approach the car dealer whom you know. Preferably approach the dealer who sold you your previous car.
You may also go in for an exchange program, where you can sell the first car and purchase the second one at a discount. Rectifying and repairing your old car, in order to increase it's worth is also another option that you can consider.
Last but not that least, one can also consider the 'interest financing rebate' facility which works in a totally different way but tends to save you a considerable amount of money.

Some Truths about 0% Finance

There are some harsh truths about 0% finance that one must know. The first one is of course the strict credit check. Take a look at a few others.
  • Lesser Options: This sort of loan is available for only specified models and some high-end models. It is usually put up on the expensive lot, a lot that very few approach in the first place.
  • Not the Best of the Best Deal: You also may not get the best deal while purchasing the car. This means, you can get better. By opting for other financing options with interest, you can save quite a lot every month.
  • Less Number of Models: New vehicles probably will not have such a facility. The vehicles which usually have been around for a year or so, the ones whose next 'generation' is about to be introduced have 0% facility. There are of course exceptions.
  • Lack of Discount: Last but not the least, the price of the car usually tends to be a little inflated, or simply the company won't offer you any discount. The car will be sold to you at perfect market price.
The best way to avail this kind of loan, is to first improve one's score, pay off some possible liabilities and lastly, assess and ascertain the models and companies which provide the facility. Toyota, GMC, Chrysler, Nissan, and Mazda are some companies which offer this kind of facility.
After the 0% finance is approved, make it a point to pay off every installment on time, not only will it keep you out of vicious debt cycles, but also help you improve your ratings and scores.