"0% Financing" Car loans are a scam

[charger]

It is quite simple. They are simply not interest free.

Take the Chevy Cavalier as an example.

It's MSRP is $16,240. If you pay with cash, knock off $3000 for $13,240.

This car's dealer price is $13,090, so the dealer makes $150 plus any "paperwork fees"

Now lets see then. Assume you take the "0% financing" you pay 3000 more,

So now the dealer is making $3150 plus any "paperwork fees"


Now assume you are holding this car for 3 years, with a simple interest rate calculated once per annum (they are calculate per month) that is 7.05% a year in interest.

HOWEVER, if you miss any payments you have to pay accrued interest for a certain period. I believe it is six months.

So 6 months interest is about $600, so you are immediately dinged this on top.

So in conclusion, skip the in dealer financing and call up your banker, they will be happy to hear from you and give you a much better rate.

[ronny1980]

anytime you buy a new car you will be scammed no matter what...

[benf]

anytime you buy a new car you will be scammed no matter what...

As opposed to buying used, and getting scammed by a used car salesman?

Used cars can come with used problems, like accident repairs etc..

When I buy new, I buy with cash in hand, and negotiate the best possible price. If you can't afford to do that, you shouldn't be buying a car.. cause if you do, you will get scammed.

[Kai Viti]

anytime you buy a new car you will be scammed no matter what...

How so?

[eelfliw]

Don't buy a car that you don't have the cash on hand to pay for it all at once.

If you don't have enough cash, buy the lower model or a different car.

Borrowing money to buy something with such high depreciation just doesn't make economic sense. You're not only paying interest on the loan, you're also suffering depreciation.

Unless, of course, someone else is paying for the car.

[DISH]

So now the dealer is making $3150 plus any "paperwork fees"

No the dealer is not making $3150 with " 0% financing" it costs GMAC money to offer this.

[deep]

Hey, it's the same thing as buying a $1200 fridge from Sears with "no interest and no payments for one year"....oh, but you DO have a $70 "processing fee" tacked on. Interesting, paying $70 today is about what....7% over the course of a year? What do you know? That's more than my line of credit!

Guess what....no one gives away money. Ever.

[deep]

Don't buy a car that you don't have the cash on hand to pay for it all at once.

If you don't have enough cash, buy the lower model or a different car.

Borrowing money to buy something with such high depreciation just doesn't make economic sense. You're not only paying interest on the loan, you're also suffering depreciation.

Unless, of course, someone else is paying for the car.

I couldn't agree more. This is one great lesson I learned from my folks. My current car was not quite 4 years old when I bought it, and has lost only a fraction of THAT value over the last 4 years. I've used it just as much as the previous owner, and have had 2 minor repairs over the 4 years.

He paid about $14,000 for the priviledge....I've paid about $3,000.

[UrbanPoet]

As opposed to buying used, and getting scammed by a used car salesman?

Used cars can come with used problems, like accident repairs etc..

When I buy new, I buy with cash in hand, and negotiate the best possible price. If you can't afford to do that, you shouldn't be buying a car.. cause if you do, you will get scammed.

thats why u learn how to buy used cars =D

[Kenneth]

On lower end cars your usually better off paying for it cash since with a good interest rate (5% or so) your ahead since you'll be paying less interest than the "theoretical" $3k incentive.

But on higher end cars the incentive is only adjusted slightly and not determined by the a certain percentage. So say a $60K suburban would only have $5k~ of incentives. So financing at prime would cost more than if you financed at zero and didn't accept the incentive.

I'm assuming you put zero down and have 60 payments. But then again anyone who buys a Cavalier is getting scammed even if they get the incentive and the zero percentage interest rate ;) .