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Not paying interest on a new car loan is almost impossible. But it is possible for people with very strong credit. And it’s definitely something to consider because you can save hundreds of dollars over the life of the loan.
How To Finance A Car Under A Business
Rates as low as 0% are only available at “captive finance companies”, carmakers’ loan pools. That’s why Ford Motor Company uses Ford Motor Credit Company to make loans to buyers who want to drive a Ford. And every automaker has its own captive lender.
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Car companies use low financing to attract buyers and make a profit on cars, not on financing costs. That doesn’t mean you have to get a loan from a captive finance company—car dealers are happy to accept money from any institution—but you’ll find the lowest rates here.
If the car doesn’t sell quickly, the captive finance company offers 0% financing as a car purchase incentive to entice buyers to choose the model. Usually, this interest-free offer is only for one month at a time.
Most 0% finance offers are widely advertised in newspapers and television. However, you can go to the automaker’s website and search for terms like “promotions and offers” or “special offers.” For example, Ford lists all vehicles with incentives, including 0% financing. Click on any car and you’ll see all the offers available: special finance rates, cash discounts and rental specials. The auto site Edmunds.com also lists all of the manufacturer’s incentives and provides some details on various loan terms.
If the car has some incentive, like 0% financing or customer cash back, how can you make a better decision? This depends on several factors, such as the amount you plan to finance the loan. Run each scenario through a car loan calculator to see which one will save you the most money.
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It may come as no surprise that automakers only offer 0% financing to buyers with high credit scores, although credit ranges can vary between lenders and some dealers list their ranges. For example, a regional offer on Toyota’s website requires “qualified Tier 1 or Tier 1+ credit customers” to get 0% financing. Toyota dealers define Level 1 as an automated custom FICO score of 690-719, and Level 1+ as 720 and above.
If you haven’t done so recently, check your credit score to see if you meet the lender’s requirements. If you’re not sure how the promotion works or if it’s still available, you can try contacting the finance or internet manager at the dealership for information. But be prepared—often the finance manager will encourage you to come to the dealership in person or fill out a credit report remotely to find out if you qualify.
Some buyers have suggested that 0% financing is a “bait and switch” tactic by the auto industry. Dealers advertise low rates to attract buyers, get them into cars, then apologize and say they don’t qualify for 0%.
This may be true in some cases, but if you know your credit score and understand the terms of the promotion, most dealers will give you the advertised offer to sell you another car. Below market rates may still be available in cases where you cannot afford 0% financing. So instead of paying 0%, you might qualify for 1.9%.
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If you’re not sure if you qualify for 0% financing, it’s wise to get pre-approved for a car loan before you go to the dealership. Once they know your pre-approved interest rate, dealers will be eager to lower that rate to entice you to finance with them.
Too often, car salesmen say, “Hey, it’s free money!” saying they carry 0% interest. While this can reduce financing fees, don’t let yourself end up buying a car you can’t afford or need.
Also, don’t assume that because you’re saving so much interest, you can also buy extras like extended warranties or extra car alarms – high-profit items sold at finance and insurance offices before you sign the purchase agreement.
As always, follow smart budgeting and car buying tips. Here are some important things to keep in mind:
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About the Author: Philip Reed is an auto expert who writes syndicated columns for USA Today, Yahoo Finance and others. He is the author of 10 books. Read more
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Sign up and we’ll send you nerdy articles on the money topics that matter most to you, among other ways to help you get more bang for your buck. you need to take out a loan to pay the expenses. Personal loans and car loans are two of the most common financing options. Assuming you meet the respective credit requirements, it’s relatively easy to get.
So what is the difference between the two? A personal loan can be used for a variety of purposes, including buying a car, while a car loan (as the name suggests) is for buying a vehicle. Each type of loan has its advantages and disadvantages; it is important to measure and compare them before signing on the dotted line.
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A personal loan provides the borrower with one-time funds from a lending institution (usually a bank) that the borrower can use at his or her discretion, such as for vacations, weddings, or home renovations.
Personal loans can be secured by something of value, such as a car or house, which allows the lender to seize your assets to cover their losses if you default on the loan. However, many people prefer unsecured loans, which means the loan is provided without collateral.
The two main elements that affect the amount paid for a loan are the interest rate and the loan term. A personal loan calculator can be a useful tool to determine how these factors will affect the amount you pay each month.
In general, unsecured loans have higher interest rates than secured loans with comparable collateral. Unsecured personal loans also come with stricter approval requirements, so you may want excellent credit on your side. If you’re in bad shape, a personal loan may not be an option.
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Your credit score will affect both the loan amount and the fixed or variable interest rate. The better your credit score, the higher your borrowing capacity and the lower your interest rate. Conversely, the poorer your credit rating, the lower your borrowing capacity and the higher the interest rate.
Personal loans have fixed repayment periods, expressed in months—12, 24, 36, etc. A longer loan term lowers your monthly payment, but you’ll pay more interest over the life of the loan. Conversely, shorter loan terms mean higher monthly payments but generally result in lower interest because you pay off the principal earlier.
Most lenders accept personal loan applications online, and you can often get approved for a car loan at a car dealership.
The car for which you want to get a car loan is pledged, that is, the car serves as collateral for the loan. If you default on your payments, the lender can repossess the car. The loan is repaid in fixed installments throughout the loan period. Like a mortgage, the lender retains title to the asset until you make the final payment.
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Before going to the dealership, experiment with a car loan calculator first to determine the interest rate and loan term that best suits your needs.
Because the lender has financial control over the car—it’s a secured loan—the loan is considered low-risk, which usually translates into a significantly reduced interest rate for the borrower. Interest rates are also fixed, so borrowers are not subject to the increases that may be associated with unsecured personal loans.
Most car loans are issued for 36, 48, 60 or 72 months. As with personal loans, the shorter the term, the higher the monthly payment and vice versa. A below-average credit history doesn’t necessarily stand between you and your car loan (unlike a personal loan). It will also have less impact on the interest rate or loan amount depending on the price of the car.
There are many ways to get a car loan. Before signing up for a merchant loan, you may want to investigate whether your local bank or credit union can give you a better deal.
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