Why 0% financing doesn’t work out as well as it seems

Posted on Wednesday, February 24, 2016 - 12:20

Let’s say you’re interested in purchasing a car, and you come across 0% financing, which sounds like a bargain. Lots of companies are advertising it, and it seems really good. What’s not to love about it, right? But things are never as they seem, so you should know that there’s a catch. 0% financing looks great at first glance, but when you dig deeper, you will discover that it doesn’t work out as well as it seems.

It may not be available to everyone

The first thing you need to know about this is that the 0% interest rate may be advertised, but not specifying the complete details. Most of the time, the deal is only available to customers who have really good credit scores. That makes sense when you think about it, but it’s still misleading. A lot of people see 0% and think they’ve got themselves a deal, when in reality, they may not even qualify for it.

Monthly payments are high

It’s true that you’re not paying interest, but trust me – you are giving them that money anyway, in a different form, which is your monthly payments. These fees are usually not low, so you can expect to shell out a good few hundred dollars every month, regardless of how you are doing financially. Of course, this comes with the territory when you are borrowing money, but you may want to look into a loan that has lower monthly payments. Remember that you are taking a commitment to pay a pretty penny every month over the course of several years. Is it worth it? Will you still use the same car? Do you have a stable job? Do you know how you’ll be doing in a few years?

Not all cars are covered in the deal

Sure, some company may advertise 0% financing, but the chances are that your vehicle selection may be severely limited. Think about it – are you willing to let go of your choice of car and choose something they are offering, in order to qualify for that elusive 0% deal? That may work for some people, especially if they don’t have fixed ideas about what car they would like, but you don’t find that often. Most people would like to have a say in the car they are paying so much for.

Factor in maintenance and ownership cost

You may be looking at some fancy car, thinking that it’s worth paying a few hundred dollars a month since you don’t have a few thousands to pay all at once. But have you factored in how much this vehicle is going to cost you in your everyday life? How much does insurance cost? How much gas does it use? How much does service cost? How much to repair or replace broken parts? All of these costs add up, and without realising, you may be looking at a total monthly cost that is several hundred over your monthly payment. That’s a lotta money.

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