Comparing Zero Percent Financing Offers
This calculator can be used to compare a zero percent financing loan to a traditional car loan to figure out which is the better offer. The calculator needs only three inputs, including:
- The car loan amount, which is how much money will be borrowed to buy the car
- The annual percentage rate on the traditional car loan, which will be compared to the zero percent interest offering
- The term of the loan (in years), which is the timespan over which the loan will be repaid to the lender
The calculator then provides the user with seven outputs, including:
- The monthly car payment for the standard, or traditional car loan
- The monthly car payment for the zero percent financing loan
- The monthly savings achieved with the zero percent financing loan
- The total of all payments made with the standard loan
- The total of all payments made with the zero percent financing loan
- The total savings achieved with the zero percent financing loan
- Finally, the calculator supplies the break-even loan amount, which is the equivalent loan to the zero percent financing offer in terms of monthly payments
Automobile Sales Tactics – 0% Financing
One of the ways dealerships and / or car manufacturers can move older inventories of vehicles is by offering buyers zero percent financing. Lenders offering 0% financing include Ford Motor Credit, GM Financial, Honda Financial Services, Kia Motors Finance, Nissan Finance, Toyota Financial and Volkswagen Financial Services. Typically, a zero percent financing offer appears alongside another offer. For example, Ford might offer potential buyers the option of zero percent financing or 2,000 off the price of a new F-150.
Comparing Offers
Our calculator can help new car buyers make a quick comparison of each offer. For example, let’s say that Honda is offering zero percent financing on a 25,000 vehicle or 2,000 off the price of the vehicle and a standard loan with 3.850% for four years. According to our calculator zero percent financing saves the buyer around 2,000 compared to a standard, or traditional, loan. That’s a very good indication of the savings the dealer is offering when the car is not on sale.
This calculator also supplies a “break-even loan” value when the dealer is supplying an alternative to the zero percent financing offer. That number represents the loan that is equivalent to the zero percent financing. In other words, a loan at this value would have the same exact monthly payment as the loan modeled for zero percent financing. In this example, the zero percent financing offer would result in a loan with a monthly payment of 521, which is the same monthly payment for a loan of 23,136 at 3.850% financing. Here again, the dealer is offering 2,000 off the price of the Honda so the resulting loan would be for 25,000 – 2,000 or 23,000. Since this value is lower than the 23,136 break even value, the buyer would have lower monthly payments with a 23,000 loan at 3.850% than they would with a loan of 25,000 at 0%.