Deal financing is often considered as 0% financing, which undoubtedly sounds like a great deal – highly alluring. However, it is not very easy to qualify for these super low rates. In fact, if we go with the latest market reports, we will find that only 5% of all applicants actually qualify for these types of financing offers. There are always certain risks associated with the same – the customers may actually be overpaying for the vehicle that they are buying. Therefore, you have to be extra careful. There are certain ins and outs about dealer financing that you need to keep in mind.
Is Dealer Financing Better Than Cash Rebates?
Many dealers in an attempt to make up for the losses and achieve their bottom line (that’s profit, of course) overprice the car. Since you are so excited about the wide array of “benefits” offered by dealer financing, you probably will overlook such factors. Besides that, when you go for dealer financing, you cannot take advantage of the cash rebates that the manufacturers are offering. If you opt for cash rebates, you cannot qualify for the super low rates offered by dealer financing.
Therefore, it is important for you to do thorough comparative analysis and figure out the best better option for yourself. In general, low interest rates (no matter how low they are) are usually not low enough to offset the higher price. After all, we are not talking about rebates of hundred or so dollars – we are talking about rebates of over $2000 or $3000. That can really make a world of difference. Here’s a simple example.
Suppose the vehicle price is $23500 (lets assume that no party has overpriced it) and the cash rebate is $3000. The dealer-financing rate is 1.9% while the rate offered by other party is 4.99%. Lets say that both the options offer a loan term of 60 months. Now, if we do the math, we find that the monthly payment in case of dealer financing is $411 while in case of cash rebate, it is only $387. This is because in the latter case, the interest is charged only on $20500 ($23500 - $3000).
Dealer Financing Usually Offers Much Shorter Term
The loan term offered by dealer financing is usually 2-3 years. Shorter loan terms mean a higher amount of monthly payment. In fact, depending upon your specific budget, it may prove to be an advantage or a disadvantage for you. If you can comfortably make higher monthly payments, it should not be a big issue for you as you will be paying off the loan sooner. On the other hand, if your financial situation is not that good, it may make a huge dent in your monthly budget.
There are a few more things that you need to keep in mind in this regard. For example, dealer financing is usually available on selected models – especially the ones that are slow-selling. Therefore, you may not have a large array of choices as far as the vehicle model is concerned. Besides that, you are most likely to be asked to make a substantial amount of down payment. Again, if you are comfortable with that, that’s not a big issue.