Promotional slogans claiming “0% financing” are reaching out to consumers in all sorts of places, with auto dealers, furniture stores and electronics stores offering product purchases with interest-free financing, which used to be part of short-term promotions and is a constant source of hope At a bargain, these advertising measures serve primarily to increase sales!
The 0 Financing Car offers numerous dealers for new and used cars. Car buyers should be moved faster to the purchase. It should be clear to any enlightened consumer that cars with zero-percent financing are not given, and caution of hidden costs is advised.
- 0% financing for car, furniture & electrical appliances
- Apparent bargain is expensive due to hidden costs
- Waiver of special conditions & higher discounts
- Car loan as an alternative to the 0 financing car
1. What lies behind the promise of “zero-percent financing”?
Anyone who buys a product through a “zero-percent financing” will take out a loan from a financial institution that cooperates with the merchant, which is a normal consumer loan or a fixed-rate installment loan with constant installments. The special feature is that it does not include an interest charge on the borrower In the course of the loan payment, the purchase price for the goods is paid directly to the merchant.The installments are paid by the customer to the bank.
2. Who has an advantage from this business?
For dealers, this financing opportunity is an opportunity to increase sales. The business is usually worthwhile even if they pay the customer a fee for financing to the bank. Customers should not expect a gift from their dealer, as this also includes hidden costs in its pricing. The overall economy benefits from stronger consumer demand, so this financing solution is quite intentional.
Credit institutions do not pay interest on such financing, in return they gain new customers. You get access to customer data without spending money on advertising. Due to the lending business, the bank gets to know the customer better, so that suitable offers lead to follow-up contracts.
2.1 What are the advantages and disadvantages for consumers?
- Acquisitions are possible despite the lack of equity without additional costs.
- Savings are not required.
- High-yielding capital does not have to be used.
- Temporary financial bottlenecks can be bridged.
- With a zero-percent financing, the goods are not automatically purchased cheap. Compared to other providers, it can be significantly more expensive.
- Purchase price negotiations can be limited. There are no major discounts or cash rebates.
- The temptations to rash consumption are high through financing offers without interest. There is a great danger of overestimating your own financial resources or making unnecessary purchases.
- The advertising promises the consumer that he can easily afford the product.
The small installments that can be achieved over a long period of time cause the real purchase price to fade into the background. Nevertheless, there is a risk of losing sight of the monthly obligations. The conclusion of a zero-percent financing is unbureaucratically possible, often done quickly and thoughtlessly. Employees pursue their own interests in the financing, because in the event of success, a commission beckons. It can be assumed that most salespeople have no training as bankers and are only able to provide information on the specific features and risks of borrowing to a limited extent.
A comparison can save you money
3. So expensive or cheap can be the interest-free car loan
Many dealers promise with a 0 financing car a car purchase at no extra cost. Customers see benefits in interest-free loans primarily, but lurk some cost traps. Offers of cheap car financing in the context of customer advertising prove to be a great advantage for dealers. Any conventional installment loan incurs interest rates which are usually unfavorable for consumers with a rather average credit rating. Is there anything cheaper than a loan with zero percent interest?
Many vehicle dealers therefore advertise with a 0 financing car. The basis for this are agreements with banks, which contain special conditions and benefit the car buyers.
Ideally, all stakeholders should take advantage. The dealer benefits from the car sales, the buyer receives a financing for free and the bank secures a new customer. In reality, desire and reality rarely match. There must be a catch in the zero-percent financing, ask potential car buyers.
In advertising, the interest-free car loan tempting consumers. In reality, it can often be said that these are apparent savings, because elsewhere there are significant additional costs.
4. Zero financing car can be associated with costs
At the moment, market interest rates are low. That’s no reason for a bank to lend money for free. How the money houses use the money of the customers, becomes clear when looking at the discretionary interest rates and credit-related loan interest rates. If a car dealer agrees with his partner bank on a zero-percent financing, he has to expect certain costs. Even if these costs are very low, he will pass them on to the customer.
About the car price, this is usually done by the cost of financing without loan interest on it. This makes the car loan interest-free, but the car costs more than it would have to.
Tip: Definitely recommended is a comparison of different financing offers. On the one hand, the prospective buyer gains an overview of the prices of comparable vehicle models. On the other hand, he familiarizes himself with the final price of different financing models. Those who refrain from this, with a tempting offer such as the free loan with nasty surprises. In the worst case, the financing option can turn out to be expensive rip-off.
5. Several contracts for a car
Fees are often used to pass hidden costs on to the buyer. For example, fees are charged for processing the car purchase. The loan agreement and the purchase contract for the car are two legally different contracts.
The loan agreement on the 0 financing car is completed with the bank. It does not matter that he was signed in the dealership. The purchase contract is not part of the credit agreement, but it is completely detached from it. The contract has as a partner customer and dealer.
This gives the seller the chance to take account of costs incurred. By charging fees for services provided, the costs of the interest-free loan offer can be covered. This is a typical fact in zero percent financing. All that matters here is that no interest or fees are directly linked to the conclusion of the loan agreement. With a 0 financing car, the likelihood is high that this financing model compared to the online loan or car loan is not necessarily cheaper.
6. Additional hidden costs can exist
Not infrequently, cheap deals prove to be a sham or they are at least unfavorable compared to competitive offers. Thus, certain contractual details on the expiry of the installment may have a negative impact. Often, sellers use the opportunity to persuade the customer to purchase additional services.
Credit Insurance : It is often used by sellers of zero-percent financing opportunity to recommend the insurance to the borrower. Often it is a residual debt insurance, which protects the borrower in the event of illness, unemployment or death in whole or in part. This insurance is usually expensive and only provides the desired protection in certain cases. If you want to take out credit insurance, you should include it in the total cost of your auto finance.
Credit Account: It happens that the bank settles the loan transaction, including repayment, via a separate credit account, for which extra account maintenance fees are charged. The account will be charged default interest if the loan installments are not paid in accordance with the contract. This variable interest rate depends on the market requirements and can well be higher than the interest rate on the credit line.
Credit Card: Finance providers and car dealers are inventive when it comes to making extra money. So it happens that there is a credit card with credit limit for auto financing. As soon as the credit card is used, interest is due. The 0 percent offer is for car financing only and does not apply to the credit card. If the credit card is billed via the credit account, additional payments to the account are necessary when the card is used. The monthly installments cover the obligations of the credit agreement, credit card transactions must be additionally compensated.
Final Payment: The financing contract may be designed in such a way that the monthly installments do not lead to the complete repayment of the zero-percent financing until the end of the term. It is therefore necessary to check whether a substantial final amount remains at the end of the monthly installment. Partly, the repayment of this final installment via an extra framework loan agreement with high interest rates. The financing of the car at 0 percent interest then applies for the term of the car loan, except the final installment.
7. What to consider before completing the 0 financing car
The conclusion of a zero-percent funding should not be rushed. Rather, it is necessary to examine whether classical financing in this case represents a more favorable solution. It is better to take a witness to the contract. It is essential to inquire about what can possibly lead to additional costs. You should not get involved in additional offers such as credit cards, insurance and special credit lines. If paid additional offers are sold as inclusive in car finance, the term zero-percent financing is not correct.
8. FAQ on zero percent financing
8.1 Is there a right of withdrawal for zero percent financing?
The right of withdrawal depends on the date of conclusion of the loan agreement. If a zero-percent financing was completed before March 21, 2016, no legal right of withdrawal can be used. From the point of view of the Federal Court of Justice (Az. XI ZR 168/13) a free financing is not equivalent to a consumer loan contract.
Thus, the purchase contract can be revoked, a related car loan must be paid in full. Since March 21, 2016, a new regulation of the Lending Law has been in force, which provides for a revocation right for interest-free loans within the legal framework. The contract can be revoked within two weeks. Since with a 0 financing car the purchase and credit agreement does not represent individual transactions as with the normal car loan the case, a revocation of the purchase contract is connected with the revocation of the loan contract.
8.2 Is early redemption of the loan possible?
Yes, a premature repayment of the loan from a zero-percent financing is allowed at any time. Banks are forbidden to charge a prepayment penalty for free loans. Since no interest rate has been agreed, the bank can not incur interest losses. Consumer advocates regard transfer fees or processing fees as inadmissible. The consumer should not engage in any agreements.
8.3 I can not pay the installments – what then?
Contracts without right of withdrawal, concluded before March 21, 2016, may terminate without notice if payment difficulties arise. Afterwards completed car loans can only be terminated if the customer is in arrears with at least two installment payments. In addition, for a financing of up to three years, the residual loan amount must be at least ten percent and moreover five percent of the total amount.
The bank must grant the debtor a period of two weeks to settle outstanding installments. If he allows the deadline to expire, he may terminate the loan. In any case, a late payment entitles the lender to charge default interest and fees.
8.4 Car loan as an alternative to buying a car with zero percent financing
Zero-percentage financing may seem like a number of advantages at first glance, but there are some drawbacks like not paying a cash payer. Who does not want to give up a discount when buying a car, but can not put the purchase price in one fell swoop on the table, can take a installment payment. Possible financing is a car loan or online loan. The interest rates for online loans are favorable, they will be even lower with the inclusion of a special car loan with deposit of the car letter as collateral.
Even if interest rates have to be paid for the normal bank loan, this would more than make up for a high potential cash payer rebate of a few thousand euros. As a cash payer, the customer is always in an advantageous position.
The cost of credit can be easily calculated online using a loan calculator. The desired loan can be arranged individually. The loan installments include all credit costs, so there are no nasty surprises. The underlying effective interest rate makes it possible to compare with other loan offers.
Important: A zero-percent financing may make a car buying tempting. That is no reason to forego the search for suitable alternatives. It is best to calculate several different options. A credit comparison is indispensable for a precise overview. On the basis of individual information, the loan is determined with the most favorable conditions.
9. Conclusion: 0 financing car can be expensive
A loan offer with 0 percent interest promises a customer that its borrowing costs are significantly cheaper than the normal interest-based installment loan. Whether he saves money in reality is not certain. Hidden costs and additional benefits can add significantly to the cost of financing car purchases with 0 percent financing. The car buyer ultimately pays more than with other financing models.
A 0 percent financing offer will usually refer to the vehicle list price. Possible high dealer discounts are not considered. Since the real purchase price for new vehicles is often below the list price, the purchase of cars becomes unnecessarily expensive.
Not every prospective buyer is eligible for a 0 percent financing. For such a loan, the customer must have a good credit rating. New car buyers with sufficient creditworthiness must pay at least a higher down payment.