Zero Percent and Low APR auto incentives are hot. But are they the best deal?
Tips from Remar Sutton, DCU StreetWise National Spokesman
The late summer weather is hot all over—and so are auto incentives. Average automotive incentives in July hit record highs, according to a report from Edmunds.com, ranging from a combined total of $3,961 per domestic vehicle to $1,361 per Japanese vehicle. Of course, only a portion of that is directed toward consumers. But recent ads have been proclaiming the return of zero percent financing and cash rebates for buyers.
Is there a good deal there for consumers? Maybe—but only if you shop smart and compare all your options. Before you start clicking on a Web ad or dash down to the showroom, consider these few facts and tips.
Financing is just one profit center for the dealer. Don't get so excited about a zero percent or low interest rate, that you fail to 1) determine the true wholesale value of your trade and 2) negotiate the price of the new car before you even begin to talk about financing deals or cash rebates. Then there are all those add-ons like extended warranties, service contracts, and “protection” packages that make big bucks for the sellers. Our StreetWise Auto Buying Guide shows you how to negotiate every part of the deal to your advantage.
Zero percent financing often isn't your best deal. Many, many buyers will save more by taking the cash rebate and financing with the credit union. Right there in the ant-type, the ads read, “All buyers will not qualify for the advertised APR.” If your credit is not excellent, that would be you. In addition, the zero percent deals in many cases are for 36 months or less with rising rates for longer terms. Even if $26,100 is a great price for a new beauty and your credit qualifies, could you stand $725 per month in no-interest payments? There's a $3,000 rebate on the same vehicle. Here's how DCU financing beats zero percent.
| |
Dealer financing
0% or low APR
incentive |
DCU financing
with rebate |
Savings with DCU
financing |
| Vehicle price |
$23,100 |
$23,100 |
|
| Less rebate |
$0 |
$3,000 |
|
| Amount to finance |
$23,100 |
$20,100 |
|
| 36 month loan |
APR: 0% |
APR: 5.45% |
|
| Monthly payment |
$641.66 |
$606.42 |
|
| Total finance cost |
$23,100 |
$21,831 |
$1,269 |
| 48 month loan |
APR: 3.9% |
APR: 5.7% |
|
| Monthly payment |
$520.54 |
$469.54 |
|
| Total finance cost |
$24,986 |
$22,538 |
$2,448 |
| 60 month loan |
APR: 3.9% |
APR: 6.2% |
|
| Monthly payment |
$424.38 |
$390.54 |
|
| Total finance cost |
$25,463 |
$23,432 |
$2,031 |
Rates from DCU were current as of 8/15/06. Dealership APRs and rebate are typical of those offered in many incentives.
Dealers often use the rebate as an excuse not to discount the vehicle itself. The rebates or “cash back” offered instead of zero or reduced APR financing are supposed to be provided by the manufacturers to consumers (manufacturers may also offer other incentives to dealers). But check the ads in your local paper. Most will read “prices include all rebates.” In many instances, the advertised “sale” price is just MSRP minus the rebate—the dealer isn't discounting the vehicle at all; with your rebate in his pocket, he's getting full price. So always do the math.
Is that vehicle with the incentive right for you? There are lots of good deals to be had on 2006 vehicles that have features you like, good safety ratings and fuel efficiency. But remember some of the biggest incentives are on slow moving vehicles. Right now that includes a lot of big gas guzzlers. So don't forget this question: Will that vehicle cost you more to run than you will save with the incentives?
Late summer and early fall can be a great time to shop for 2006 models, and incentives can help save big bucks, but only if you compare all your options and negotiate the whole deal, not just the financing.
Breaking news analysis prepared for DCU by Remar Sutton & Associates, August 2006.
| A note about third-party links – By selecting links on this page, you will leave DCU's web site and enter a web site hosted by an organization separate from DCU. We encourage you to read and evaluate the privacy policy of any site you visit when you enter the site. While we strive to only link you to companies and organizations that we feel offer useful information, DCU does not directly support nor guarantee claims made by these sites. |
|
