0% Interest? Is it too good to be true?

I have had a lot of people ask me lately about the unbelievable interest rate deals on offer on new cars at various dealerships, offering things like 0% and 1% interest rates on select new cars.  Most of the main manufacturers like Holden, Ford, Toyota and Nissan, and even some of the fringe manufacturers like Volkswagen and Lexus are proudly advertising these deals,  but why, and more importantly how? 
I have had a lot of people ask me lately about the unbelievable interest rate deals on offer on new cars at various dealerships, offering things like 0% and 1% interest rates on select new cars.  Most of the main manufacturers like Holden, Ford, Toyota and Nissan, and even some of the fringe manufacturers like Volkswagen and Lexus are proudly advertising these deals,  but why, and more importantly how? 
It’s all in the fine print. If the dealers (through their manufacturer’s financier) are not charging interest, then they have to make up the difference in some other way, and there is more than one way they can do this – in fact you may find that it costs more to purchase a new car on 0% interest than to have the finance pre-approved from an independent financier.
So how do they compensate for such low interest rates? 
1.The price of the car. If you walk in and want to use the 0% rate on offer, the price of the car will not be negotiable.  You will pay RRP plus dealer delivery, stamp duty and registration and not a cent less.  Alternatively, if you had the money ready and you would certainly find a dealer willing to do a deal to secure the purchase.  The available discount on the purchase price of the car upfront could be far more than the total interest you would pay at say 7 or 8%.  
2.The loan fine-print. 0% offers often come with fine print like 30% deposit over 3 year loan term.  They count on people falling in love with the car, and only then finding out that they are not eligible for the 0% deal as they cannot pay the required deposit or afford the repayments over a shorter term.  It is too late to go back and negotiate on the price of the car, and from a psychological point of view you have already bought the car in your head – meaning customers often fall into the trap of instead taking a normal finance deal available at a normal interest rate. Of course, you have now missed your opportunity to save some money on the price of the car. 
It pays to go into any deal with your eyes wide open. Do your sums so you know what deal will represent the best value to you. Even if it is a quick phone call or chat to us here at Paleso – the knowledge of exactly what the car will have cost once the loan is finished gives you the power to negotiate rather than taking what some say is a deal that is too good to be true.
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