Technically, zero percent financing is really in existent. The low rates offered by lenders are in fact incentives they offer in lieu of rebates or money saved from the difference between a car’s actual selling price and its manufacturer’s suggested retail price. The lender receives the cash discount and buys down the rate instead.
Factors such as the overall cost of the loan and the credit score of a lender determines the amount that the bank might make in profit. Often if not all the time, zero percent financing on cars is only offered on limited models and price ranges and available only to borrowers with good to excellent credit scores. The manufacturer of the new car pays in advance all the interest charges that the lending bank imposes in order to be able to offer zero percent financing. Banks are preferably a new car lender or are the manufacturer’s bank, so that the manufacturer can get some sort of discount. This is buying down the discount.
In lieu of rebates and/or cash backs, the zero percent financing is then offered. In most cases, the savings on the rebates and the cost to buy down the interest rate from the lending back are of the same amount. A very handy tool, the car loan calculator, is used for the manufacturer to be able to accurately compute the overall cost of the loan and how much is the cost to buy down the loan. The information needed for the computation are the car’s selling price and the standard rate that will be used to decide the amount paid back over the term of the loan. For the zero percent financing to be offered, the optional rebate should offer the same discount and this is most likely in all cases.
When car manufacturers provide rebates or zero percent financing the one that benefits with the most profits is the car dealership because they are reimbursed by the manufacturer for any rate incentives or rebates that they provide their clients. What many buyers do is to go for the rebate or zero percent financing instead of trying to negotiate the price of the vehicle. The car dealer is able to maximize his profits if the buyer doesn’t try to negotiate any discounts or deductions on the car’s selling price. Rebate discounts are also the same. This is why dealerships love zero percent offers because it increases their business.
Car dealerships with smaller operations do not usually offer zero percent financing. Smaller dealerships that do offer zero financing should first be able to earn enough profit on the price of the car so they can cover their expenses in buying the rate down first. Before purchasing a car, check first for as much information as you can about its price because when you go to the dealership it is most likely that the prices are marked up by the dealership. The ones that make the most profit of all are the pay-here and buy-here lots.Sometimes just a little more cash is needed at times like this you might count yourself out due to your bad credit instead you should consider a bad credit loan from a company like BHM Financial.