You Can't Go Wrong With 0% Interest, Can You?

Congratulations! You’ve orchestrated an amazing deal on a new car for yourself. You got the most for your trade, you negotiated a bunch of money off the MSRP, and best of all - you got 0% interest on the loan! There’s no possible way you could have done better….right?

Well first, let’s talk about where that 0% or .9% interest rate comes from. All vehicle manufacturers have a financial arm, commonly known as their captive lender, that act as lenders to their franchise dealers. Whether that be Nissan Motor Acceptance Corporation, Ford Credit, GM Financial, etc. - the only way to get a rate like these is to finance through the manufacturer’s lending institution. The reason for this is, these interest rates are subvented interest rates. This means that the captive lender has paid down the interest rate, but usually in lieu of rebates otherwise available to a consumer.

So let’s say you have a total of $6,000 in rebates available to you. If you take, say, 0% interest at 60 months, you may end up forfeiting part of that rebate so you only receive $4,000 of those. So yes, you may have 0% or .9% interest, but it still cost you $2,000. So is that the best scenario for you? Well, math can give us the answer to that.

What you’ll have to do is find out how much you would otherwise be paying in interest with the interest rate you would normally qualify for. If you qualify for one of these dealer’s subvented interest rates, chances are you have a prime credit score and you’ll likely qualify for a low interest rate anyways. If the amount of interest you would pay throughout the entire loan is less than the rebate you would receive, it is certainly better to take the higher interest rate and the rebate in lieu of the lower subvented rate.

If you’re financing $20,000 at 60 months, you can finance your loan all the way up to 3.7% and still pay only $1,938 in interest. Taking the $2,000 in rebates still puts you ahead. Even more, you’d have to be very certain that you’ll be keeping that loan for the entire 60 months. If you pay it off early, trade it in, or the vehicle ends up totalled, you’ll be paying even less in interest. So especially if you only plan on keeping a car for 2 or 3 years, you may be better off keeping the extra rebate and allowing PayLowRate.com to independently find you the lowest interest rate out there.