November 9, 2011  |  Comments
The Fine Print: 0% APR, delayed and low payments

Photo By  Paul Vladuchick

Creative Commons photo via Flickr.

The Fine Print: 0% APR, delayed and low payments

Back in August, we lifted the curtain and revealed some hidden truths about auto dealer advertising. But we only scratched the surface; we couldn’t encompass all the hooks or offers into one post. As such, we’ve decided to make this into a series called The Fine Print. Today, we’ll take a look at zero percent APR, delayed payments, and ridiculously low payments.

Editors’ note: The offers and events you see outlined below are examples. You might see many versions of similar offers and often differ from store to store. AutoNation is offering general advice. If you want specifics on an offer(or offers) you are considering, contact the store that provided the offer. Ask them to walk you through it (and all options or variations) until you are comfortable. If for some reason the dealer is not willing  or you’re unsure about the offer, we suggest you walk away until you understand everything.

0% APR

Every time auto sales are slumping, it seems the manufacturers pull out the zero percent financing offer. Why? Because it bring in traffic and for good reason. When you’re able to qualify for zero percent APR, you’ll save thousands of dollars in interest charges alone.

However, be on the look out for zero percent offers that do not advertise the length of the term in the big headline. Zero percent financing for 60 or 72 months is a big deal. That is something the dealer will advertise as large as possible. But if the term is only for 24 to 36 months, often times it will be hidden in the disclaimer.

Great deal

If your credit score is strong enough to land zero percent APR for an extended term, you could save thousands of dollars over the course of your car loan. The difference between financing a $25,000 vehicle with zero percent APR and six percent APR is $3,360.

No payments for 90 days

The common misconception with no payments for 90 days is that the dealership is making the payment for you. They are not. The dealership is simply delaying your first payment for three months. For example, if you signed a 60 month loan in October, you still will pay 60 months of payments, but your first payment won’t be due until January.

Now, if the advertisement says something similar to, “We’ll make your first three payments,” that’s a different story. The store is actually making your payments. However, they are just using the manufacturer’s rebates to make your first three monthly payments.

Good deal

Since interest accrues from the date of purchase, you’ll end up paying a little more for this vehicle over the entire length of the loan (just three months of interest could cost as little as $100). But depending on your own situation, that extra money might not mean as much as the financial freedom of not making any car payments for three months.

Ridiculously low payments

$88 down, $88 a month.

New cars as low as $79 a month.

These are attention grabbing offers. However, as the old adage goes, if it’s too good to be true, it probably isn’t. In the above examples, there are two different offers at work, either the payments will balloon after a certain time period or the low payment is matched by a large down payment.

Let’s start with the balloon payments or subsidized payments. The advertisement says you can purchase a new vehicle for $88 down and $88 a month. But, hidden in the fine print you’ll notice those low payments only last for the first six months, after which, the monthly payments will balloon to $300, $400 or even $500 a month.

Now, for the low payments matched with large down payments … Say there are two ads offering a lease on the same car. Ad #1 is offering the car for $250 a month for 36 months with $0 down. Ad #2 has the same car for $79 a month for 36 months. Why the big difference? It’s the down payment. Most ridiculously low payments have an equally ridiculously large down payment. Most likely the down payment for Ad #2 would be over $6,000. If someone is looking for a car with a monthly payment under $100, they probably don’t have over $6,000 for a down payment.

Car dealers know that most people will not actually buy or lease cars with these ridiculously low payments. Who can afford those balloon payments or large down payments? These payments are designed to get traffic into the showroom and not sell cars.

Too good to be true

For the most part, stores that use these type of offers will employ high pressure sales tactics to switch you into a deal that is more fitting your financial situation. If the advertising is not upfront and honest, why should you expect the sales experience to be any different?

We want to hear from you

The examples above highlight a few popular offers that often confused auto buyers. The key is to understand all of the facts and stipulations, trusting the auto retailer making the offers and being comfortable with your decision.

If you’ve seen other offers on new or used vehicles that “seem too good to true” or want some additional help, send in your questions through Facebook, Twitter, or in the comments below this post. We’ll do our best to answer your questions in a future post or reach out to you one-on-one.

About Adam Lopez

Adam Lopez is an advertising specialist at AutoNation's headquarters in Fort Lauderdale, Fla.
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  • Belovedrose

    This is definitely good information to have.  Thank you so much.

  • Guest

    I just got an email offer from Mitsubishi but I didn’t understand the fine print: “*0.0% APR for 60 months (60 monthly payments of $16.67 per every $1,000 financed)”
    What is the $16.67 for every $1,000 financed?, is that minimum payment?

    • Adam Lopez

      The $16.67 for every $1000 financed is not an interest charge, it is a way for the consumer to calculate their monthly payment. Whenever an interest rate is advertised, the store must give the consumer a way to calculate the monthly payments. Since the payments can vary, based on the car that is bought and the money that is put down, the equation needs to be used for a varied amount of money. That is why it is broken down to units of $1000.

      For example:
      Say you buy a new car for $23,000. You put $3000 down. That means you have to finance $20,000 (principal). With 0% APR for 60 months, you won’t have to pay for any interest, but you will have to pay the $20 grand over 5 years.

      The math works like this:
      $20,000 has 20 units of $1000. $16.67 times 20 equals $333.40. The monthly payment is $333.40.

      Let me know if this helped you or added to your confusion.