Zero Percent Finance

Zero Percent Finance

Myths vs. Facts – Zero percent finance
If you’ve ever been near a TV, you’ve probably seen the car or vehicle dealer commercials touting “zero percent finance” or “0% interest rates” or something similar to that. Smallloans.com.au has been in the small cash loan and general finance market a long time. If it’s too good to be true, it usually always is. Here are some myths and facts about zero percent finance.
Myth: If I miss out on this deal, I’ll never get such a great model/price/car again!
Fact: Halley’s Comet comes once in a lifetime, car deals are a dime a dozen. Flashy deals scaring you with “once in a life time” or “limited time only” deals really truly aren’t. These tactics are trying to get you off the couch and into the showroom so they can close a deal.
Myth: Zero percent means just paying off the principal
Fact: A Zero percent interest rate is not a zero percent comparison rate. Read our blog post on comparison rates for more information. If you take out a zero percent loan for $30,000, you will definitely not be paying back $30,000. You will pay much more in charges and other fees that are buried under fine print in the long term.
Myth: Zero percent finance is just like any other loan with my choice of repayment terms
Fact: Dead wrong. Zero percent finance comes with so many strings attached you could call it Pinnochio. All the power lies with the financier and the car dealer in this situation. You are not in a position to choose your own loan term, which can reduce repayments in some cases.
Myth: I can get zero percent finance with any car on the lot and get better options etc.
Fact: Zero percent finance deals are reserved for cars the dealership is desperate to shift. 0% finance deals from the dealer’s view is an attempt to get rid of excess stock. Cars parked in the showroom mean the dealership has bought them and needs to sell them to make money or break even. If it doesn’t have an air conditioner and you wanted it, tough! That’s the car they’re offering and the car you signed up for.
Myth: I’ll get an even better deal by negotiating for a lower price or trading my old car in
Fact: in the car world, there are two kinds of prices – the recommended retail price (RRP or sometimes MSRP) and the list price. Usually, if you organise your own finance independently of the dealer, you can definitely negotiate or “haggle” with a dealer to get closer to the list price on the base model or throw in optional extras without paying more. In zero percent finance situations, you don’t have this option. If the RRP is $50,000, you will pay $50,000 (plus any of the fees and charges involved.) If you chose to haggle and got a competitive car finance rate elsewhere, you may have ended up paying thousands of dollars less for the car.
Added to that, dealers will usually not honour trade-ins to the top dollar like they would in normal transactions. The aim of the game is to make as much money as possible from you!
Other hidden traps
Some zero percent deals offer optional balloon payments at the end of the loan. This may reduce your monthly repayments, but you’ll still need to fork out up to 30% of the purchase price to pay the car off. Some might offer a “guaranteed buyback price” as well, which just means they want you back in their dealership when you’re due for an upgrade.