Home :: Articles > The 0.0% Financing Trap
|
The 0.0% Financing Trap
Life is great, isn't it? Auto manufacturers are making some of the best built, most exciting cars ever. And to top it off they are selling them to you with 0.0% financing. Great cars and free financing; what could be better than that? Truth is, just about anything.
Car manufacturers are offering such enticing rates because they are producing cars faster than you and I are buying them. Zero percent financing is a great lure to get people into the showroom and into a new car. Since its inception at the end of 2001, zero percent financing has been an unqualified success in getting people to trade in their cars for a new one.
This success has created a used car glut. And herein lies the blessing and the curse: With an overabundance of used cars entering the market, prices for used cars have plummeted to their lowest levels ever.
The Curse: Since the moment the buyer of that brand-new car drove off the dealer lot, they were the owner of a used car. This is a fairly old adage, but with the new economies of zero percent financing, the moment those front tires hit the city street's asphalt, it has begun depreciating faster than ever before.
Therefore, the amount that buyer will save in financing charges is insignificant to the amount the car will be depreciating in the first year. Here is an example of three best-selling vehicles in their respective classes, comparing the new price and the price The Import Warehouse sells the car for after one year:
|
|
Ford Explorer XLT |
Dodge Caravan Sport |
Chevy Lumina LS |
| 2003 MSRP* |
$33,870 |
$25,540 |
$24,920 |
| IW Price* |
$18,900 |
$12,925 |
$14,300 |
| % Depreciation* |
44% |
49% |
43% |
|
Currently, traditional car loans are the lowest they have been in 40 years, between 4% and 5%. Taking the example of the Explorer above, zero percent financing will save the new car buyer $800 in the first year versus a 4.5% rate*. Balance that against the first year depreciation of $14,970, and it doesn't take a rocket scientist to see that zero percent makes little financial sense.
The Blessing: For those educated consumer smart enough to consider a pre-owned car, the zero percent lure has meant unparalleled selection of late model cars at incredible prices. Along with some of the longest warranties ever offered, the used car buyer can buy a near-new car for 25% to 50% off or more and still have the peace of mind of a manufacturers warranty. Truth is, even the least expensive hatchback of today is better in overall quality compared to the priciest of luxury cars from just five years ago.
And with many finance rates at under 5%, now is a great time to buy the car of your dreams at a fraction of the cost. Visit our Financing page for loan options.
Still considering a new car? Want to find out what it will be worth in a year? Wondering how much The Import Warehouse would sell that car for? Vist our Find My Car page to get a quote.
*The Small Print: 2003 MSRP is the base MSRP, including destination charges, and includes no options. The IW Price is the Trade-In Price as listed in NADA June 2003 Mountain Edition. 4.5% interest rate on a 36 month loan with zero down and does not include options, taxes, and fees.
|
Yelp!
Facebook
Twitter
