Is 0% financing really free?

[Doctordestiny]

With the economy I expect to see some 0% auto financial deals. Are 0% financing deals really free? I think they get it back on the price of the car.

Comments?

[Rathji]

Not counting any financing charge that exists, it is technically free since the opportunity cost when compared to using your own cash or financing that is not 0% is not zero.

The only exception to this is if a dealership is less willing to haggle on the price if you are financing vs cash. Although I am pretty sure dealerships hate cash deals and will tend to be more rigid in the haggling process if you come in with your own financing/cash.

[burn_this_city]

I dont think you'll see any 0% financing anymore.. The credit market is too tight for lenders to give cash away.

[Winsor_Pilates]

Hundai has 0% right now

[You Need a Thneed]

The only exception to this is if a dealership is less willing to haggle on the price if you are financing vs cash.
This is the case. You'll get a lower price if you pay cash then go for the 0% financing.

[pylon]

No, it is never free. I am a finance manager at a car dealership and I can assure you that any dealer offering 0% is doing do in lieu of a rebate. Typically the rebate works out to about the same as the cost of the interest if you were to borrow at a conventional rate. In some cases it is actually worse to do 0% because if you take all the rebates and add them up, they exceed what you would pay to borrow the money from your own bank. So ask for diclosure from the dealer on what rebates are available in lieu of finance, then do the math based on what you figure the bank will lend you the money for. Hope this helps.

Pylon

[Doctordestiny]

No, it is never free. I am a finance manager at a car dealership and I can assure you that any dealer offering 0% is doing do in lieu of a rebate. Typically the rebate works out to about the same as the cost of the interest if you were to borrow at a conventional rate. In some cases it is actually worse to do 0% because if you take all the rebates and add them up, they exceed what you would pay to borrow the money from your own bank. So ask for diclosure from the dealer on what rebates are available in lieu of finance, then do the math based on what you figure the bank will lend you the money for. Hope this helps.

Pylon

It does. How do you know what they disclose is accurate. Nothing personal, but if it was 12 noon and a car salesman told me it was light outside, I'd have to look out the window to be sure. I don't trust those buggers. Not even a bit. Thanks.

[pylon]

It does. How do you know what they disclose is accurate. Nothing personal, but if it was 12 noon and a car salesman told me it was light outside, I'd have to look out the window to be sure. I don't trust those buggers. Not even a bit. Thanks.

Most automotive sales people are pretty up front nowadays, but if you are really having trust issues go to carcostcanada.com and pay the 25 bucks or whatever it is for a cost disclosure. They usually include all the rebates in their reports. What are you loking at buying anyway? I may be able to help, I know a lot of guys in the business.

[Doctordestiny]

PM coming.

[oilers_fan]

I hate car dealerships. I wish it were simpler when buying a car. Less BS. Less hidden costs. You've got to be a bloody expert when buying a car or they take you to the cleaners.

[oilers_fan]

Most automotive sales people are pretty up front nowadays, but if you are really having trust issues go to carcostcanada.com and pay the 25 bucks or whatever it is for a cost disclosure. They usually include all the rebates in their reports. What are you loking at buying anyway? I may be able to help, I know a lot of guys in the business.I've done that. And when it came to the attention of the salesman that I had gotten info at carcostcanada, he tightened up even more. There's a reason car salesmen are known to be sleazeballs.

[Shazam]

AMA members get CarCostCanada quotes for free, BTW. And black book, gold book and whatever other books there are.

[Deegee]

I think at one point Hyundai's Sante Fe was $30,000 financed at 0%, but go through a bank and do a loan at whatever and the price dropped to $20,000.

Wow, huge.

[Clarkey]

Duh, they just boost the price of the car to compensate for this.

[Titan]

I was talking to GM a while ago and they were eliminating the 0% but introducing a $10000 rebate on the vehicle. Way better.

[Sample00]

I'm not feeling a lot of love in this thread.
I jest of course....
Having said that, we sell used vehicles. We dont have the luxury of rebates and stuff. I think like any other business we're entitled to make a profit. If I sell you a car and you are comfortable with the price of it and I am comfortable selling it for that price. Then I perceive that to be a win/win...wouldnt you?

[Julio]

I hate car dealerships. I wish it were simpler when buying a car. Less BS. Less hidden costs. You've got to be a bloody expert when buying a car or they take you to the cleaners.

This is why I'm saddened at the concept of Saturn going down. Even as they have become little more than an appendage of GM as opposed to an semi autonomous company, they kept the culture of no haggle pricing. I bought a very basic model, so even the dreaded sitdown with the sales manager took about 15 minutes when I bought my last new car.

[Draug]

I'm not feeling a lot of love in this thread.
I jest of course....
Having said that, we sell used vehicles. We dont have the luxury of rebates and stuff. I think like any other business we're entitled to make a profit. If I sell you a car and you are comfortable with the price of it and I am comfortable selling it for that price. Then I perceive that to be a win/win...wouldnt you?

Of course you are entitled to make a profit, and I wouldnt expect anything less.

I think the problem that most people have (or at least me) is that car dealers, especially in Canada, aren't up front about what profit they are making. A customer never knows if they are paying 1% to the dealer, or 40%.

A customer knows they are paying lawyers $300 an hour, real estate agents 7% + 3%, 50% capital gains tax, etc. And people hate all those fees much less than a car dealer.

Perhaps if all the fees and profits were fully disclosed, by law, people would trust the industry more, and maybe even use it more too.

[Sample00]

Of course you are entitled to make a profit, and I wouldnt expect anything less.

I think the problem that most people have (or at least me) is that car dealers, especially in Canada, aren't up front about what profit they are making. A customer never knows if they are paying 1% to the dealer, or 40%.

A customer knows they are paying lawyers $300 an hour, real estate agents 7% + 3%, 50% capital gains tax, etc. And people hate all those fees much less than a car dealer.

Perhaps if all the fees and profits were fully disclosed, by law, people would trust the industry more, and maybe even use it more too.

very good point...
but, and I know this is simplified...
when you buy a chocolate bar at the local convenience store, do you know how much profit the retailer is making?
when you buy a house from a builder or even a home owner, do you know how much profit their making?
why is it necessary for a business to disclose their profit margin if its a privately owned company?
just asking..nothing else.

[Maritime Q-Scout]

I'm inclined to agree with Sample00

You don't know how much profit the dealer is making. However there is more than one dealer out there. You have the ability to walk in, get a price, and compare it to others. You can see what one dealer is offering you over another.

Not to mention a dealership in downtown Calgary AB will have higher costs than a dealer in Bible Hill NS. While the cost of the car I believe is the same (they average shipping etc nationally don't they, so the cost of the car itself is the same for every dealer?) The overhead fix costs of the Calgary dealer are much higher than that of the small town Nova Scotia dealer.

There's more to costs than simply the car itself.

Within the last month I've purchased several pairs of pants, and socks, went on vacation and stayed at two hotels and a small family owned lodge. I don't know what the costs were for any of them. Was my $94/night in Moncton a good deal? What about $65/night in Amherst? What was the markup on my pants from Marks Work Warehouse? How much was I overpaying for three pairs of Calgary Flames socks at Marks?

The difference is merely scale, $9.99 for socks compared to $20K or $30K for a car. But I'll bet you a Canadian Nickel that the percentage markup was higher on my socks than was on your car.

Dealerships have the advantage of expertise. It's what they do, why punish them for it? We have so much access to information now, that they have a hard enough time trying to sell their products, not to mention the competition. A quick google search we have the gas mileage, standard features, warranty options, crash test analysis, and hell what colours are even available. The gap of expertise is smaller. Frack, look at this thread, your knowledge of the 0% financing, is greater and you now know that's usually in lieu of a rebate (I didn't know that).

Just because you don't like car salesman doesn't mean you should be compensated for it. Keep shopping around, or only talk to a salesman that builds a rapport with you and doesn't ooze grease. Every single sales industry has good people and sleezeballs.

Don't settle for a sleezeball because you're buying a car, when you'd never put up with him trying to sell you your sweater.

[Nancy]

Meh, part of the problem is the psychology of buyers. One reason that Saturn never took off is that people still want to feel like they got a special deal. If you talk to almost anyone who buys a car they will tell you how they got a special deal on their vehicle. In reality, no body gets a special deal. If you get good financing, you lose out on the rebate. If you take the rebate, you lose out on financing. If you are particularly cunning and get both a rebate and the financing, they'll take it out on your trade in value.

There are a couple of big downsides to the low-rate financing. One is that people have lost touch with the open market cost of a secured auto loan, which is more like 6 to 10%. Carmakers probably don't pay quite that much, but the cost of financing ends up being quite a bit higher than 0%, and this gets buried in the price somewhere. So, you don't realize exactly how much that big auto loan actually is costing you.

The second downside is that, if you prepay the loan early (e.g. you decide to sell the car), you lose out quite a bit versus if you had taken the rebate.

[DementedReality]

my problem with buying a car isnt that they make a profit or even if i know how much they make. thats their business, i dont know how much profit anything else I buy produces for the firm I am buying from and i dont care. in fact if they dont make a profit, they wont be there when i need to buy something, so this isnt my issue.

my issue is the BS in the business office.

1) why should i pay an administration fee? thats your cost of doing business, do i pay Safeway a "checkout fee"? well dont they have costs for checking out? i dont know how Auto dealerships justify this.

2) the bartering BS. if you cant say yes, i dont want to negotiate with you. however, its always this crap where they give you their line how they want to get the best price and have to go talk to the manager. meanwhile, i know its a tactic to make the customer sit there longer then neccesary. i want to talk to the person who can say yes, not the go between.

3) so the sales guy tells me what a great product their cars are and the business manager then tries to sell me stuff to protect my seats and undercoating and paint etc ... what happened the quality? the dealer and manufacturer should be applying all those extra's to protect the integrity of their product and it should be built into the final price of the car.

4) i hate the entire negotiation process, the tricks, the mind games and the fact they think you are stupid.

its the most dreaded purchase ever. my simple rule of thumb, if you drive off a lot with a car,you lost. just bring the lube, it makes it easier.

with all due respect to our resident car salesman.

[Sample00]

please see below for my responses to your concerns.

my problem with buying a car isnt that they make a profit or even if i know how much they make. thats their business, i dont know how much profit anything else I buy produces for the firm I am buying from and i dont care. in fact if they dont make a profit, they wont be there when i need to buy something, so this isnt my issue.

my issue is the BS in the business office.

1) why should i pay an administration fee? thats your cost of doing business, do i pay Safeway a "checkout fee"? well dont they have costs for checking out? i dont know how Auto dealerships justify this. couldnt agree more, it is BS. Profit margin should more than cover the "admin" fee. Finance companies will have an admin fee for doing the paperwork. Those costs are designed to cover off such things as long distance phone calls, vehicle lien registration etc. In my opinion, they shouldnt charge that either. Finance companies make their money off the interest rates they charge. Cover the "Admin Fee" in your interest rate.

2) the bartering BS. if you cant say yes, i dont want to negotiate with you. however, its always this crap where they give you their line how they want to get the best price and have to go talk to the manager. meanwhile, i know its a tactic to make the customer sit there longer then neccesary. i want to talk to the person who can say yes, not the go between. Most times, the bartering thing with a salesperson and then having to go to the Manager is a rue. As we own a lil used car dealership, guess what?, I get to make that decision whether I am going to sell you the car at the price you offered me.

3) so the sales guy tells me what a great product their cars are and the business manager then tries to sell me stuff to protect my seats and undercoating and paint etc ... what happened the quality? the dealer and manufacturer should be applying all those extra's to protect the integrity of their product and it should be built into the final price of the car. Scotch guard, what a joke! again, I agree with you that those things should be included in the price of the vehicle. I would think most people wouldnt mind paying a bit more for the unit if all those things were already put in place. The Big auto makers should build those things into the cost price of the vehicles that they sell to the dealership.

4) i hate the entire negotiation process, the tricks, the mind games and the fact they think you are stupid. The whole concept of negotiation for the purchase of a vehicle has been in place since vehicle sales actually started. or anything else that you can dicker on for that matter. Personally, I like the approach of, heres the price we are asking for our vehicle. Its a starting point. I will tell you in no uncertain terms what the absolute bottom price is for our vehicle. If you dont like that price, then you are free to go elsewhere. Why do we have a sticker price then? Cause we have found that most people want to barter on the price and we needed a starting point. We get to a point though, where if someone asks me what the bottom line is...I will tell them and that really is the bottom line. After that, you either buy the vehicle or you dont.

its the most dreaded purchase ever. my simple rule of thumb, if you drive off a lot with a car,you lost. just bring the lube, it makes it easier.

with all due respect to our resident car salesman. I'm feeling the love now! :D

[Bertuzzied]

Hyundai currently has the 0% financing and the cash rebates. Never thought i would buy a korean car. Just wished the vera cruz was at 0%.