The Globe and Mail: Debt-burdened Canadians succumb to lure of long-term car loans

[jasonkwan86]

GREG KEENAN - AUTO INDUSTRY REPORTER
The Globe and Mail
Published Sunday, Jul. 22 2012, 6:54 PM EDT
Last updated Sunday, Jul. 22 2012, 8:21 PM EDT

Massive mortgage debt is top of mind for Bank of Canada Governor Mark Carney, but in his quest to curtail Canadians’ borrowing, he might want to start thinking about the vehicles sitting in their driveways and garages, too.

The use of long-term loans to purchase new vehicles is skyrocketing, as car buyers look for ways to cut or hold steady a key component of a family’s spending – the monthly car payment.

More than half the Canadian car buyers who borrow to finance their vehicle purchases are taking out loans longer than six years, according to new data from J.D. Power and Associates.

That is a huge increase from just five years ago, when 14 per cent of buyers borrowed for six years or more, said J.D. Ney, an automotive account analyst in the consulting firm’s Canadian office.

Mr. Carney has been warning since 2009 – and with particular urgency in the past year – that Canadians’ debts are getting out of control. In the first quarter, personal debt reached 152 per cent of disposable income, a record.

His warnings have been amplified by the International Monetary Fund and Federal Finance Minister Jim Flaherty, who has tightened mortgage rules several times in a bid to cool an overheated housing market.

But the big increase in the cost of buying a home, combined with stagnant incomes, has forced Canadians to find ways to hold the line on other monthly payments.

Enter the auto makers and financial institutions with interest-free loans of as long as eight years. Free money for seven years is common at the moment at your neighbourhood car dealer – highlighting the fact that auto makers, which began using cheap financing well before the industry crisis of 2008-09, have been unable to resist returning to it as a tactic for luring buyers into showrooms.

The jump in long-term car loans is “another sign that households are under tremendous pressure and that they’re finding any way they can to stretch out their payment or keep a lid on their payment,” said Douglas Porter, deputy chief economist of BMO Capital Markets.

Growth in non-mortgage debt has actually dropped to its lowest pace since the early 1990s, Mr. Porter said.

But “when people have to get another car and trade in their older one they may be coming back with some debt still owing,” he noted. “So we could see some of those debt numbers start to crank up again.”

That’s precisely what J.D. Power data are showing.

In 2007, 17 per cent of buyers were trading in a vehicle that wasn’t paid off. Now, 26 per cent of buyers are in that position.

“Consumers today just don’t think of the car as being $28,500,” said Mr. Ney. “They think of it as being $500 a month. There’s a certain pain threshold – whatever it takes, we’ll try and keep that [same] monthly payment.”

Another factor behind the loan growth is the decline in leasing as a means of purchase. Monthly payments on leased vehicles are generally much lower than monthly payments on loans.

Until the credit crash of 2008, more than 40 per cent of buyers leased their vehicles rather than financing them or purchasing them with cash.

Leasing all but disappeared during the recession and is only slowly returning. It represented just 17 per cent of new vehicle purchases in the past 12 months, J.D. Power said.

Source: The Globe And Mail (http://www.theglobeandmail.com/report-on-business/economy/debt-burdened-canadians-succumb-to-lure-of-long-term-car-loans/article4434786/)

[coriolis]

Payment plans are ridiculous, especially the 84 month ones, thats SEVEN years of payments. Of course, the low low payments are enticing, but when you realize you're paying it over seven years, the big picture was obscured by the rates and payment itself.

I'm not going to lie, I used to think like that, which was extremely short-sighted. I've been eyeing a new vehicle for the past while, it'll definitely be paid off at the spot.

[booblehead]

That's why we want BIG discount on the car :D

Hopefully, dealer cost + $100 ;)

[jdmkidd]

I got 2 buddies who did the 84 month thing an open loan and lump sums can be dropped on it. For the first 2 years they pay the minimum once they were a bit loose they started dropping higher monthly payments. Worked out fine for them.

[spike1128]

The OP works at the car dealer. Maybe if he was the boss, he sweeten the deal for all of us. We know car dealers make a killing on selling/servicing cars. Lower prices = less years for us to pay off.

What I like to see is how much they make compare to other brands, also versus the car dealers in the US. After all these years of $ being on par with US, we still getting riped for a few grand more for the same car.

In before mods newsbot this thread

[tim-x]

84 months @ 0% financing is a great deal as long as you're still looking at the overall money you're spending and not just monthly payments. If you're tightening your belt to make those monthly payments then you'll likely be screwed at the end but if you have the cash to buy a $20,000 car and you can get financing for 84 months without interest then that makes much more financial sense, as you can invest that money at no cost to yourself while the car dealership is out of pocket for the next 8 years.

[divx]

I got 2 buddies who did the 84 month thing an open loan and lump sums can be dropped on it. For the first 2 years they pay the minimum once they were a bit loose they started dropping higher monthly payments. Worked out fine for them.

i agree, it's nice to have the options on payments, this is a non-issue.

[gilboman]

It's not as simplistic as stretching loans over longer term as indication of debt stress. I mean with the 0% or ultra low financing rate that's being offered, even if I can buy outright, I'll be a fool not to take free money (unless there was a big cash discount). I mean if the interest is low or zero for longer, take out the longest loan you can on the car and use the saved money and even if you put it in a GIC, you'll come out ahead.

[divx]

^seems like common sense right? but can we assume the masses are at our intelligence level?

[M-e-X-x]

7 years? I already thought 5 years was long after paying off my car last month.

[poedua]

84 months @ 0% financing is a great deal as long as you're still looking at the overall money you're spending and not just monthly payments. If you're tightening your belt to make those monthly payments then you'll likely be screwed at the end but if you have the cash to buy a $20,000 car and

you can get financing for 84 months without interest

then that makes much more financial sense, as you can invest that money at no cost to yourself

while the car dealership is out of pocket for the next 8 years.

:lol::lol::lol:

It never ceases to amaze me the number of people on this forum who actually believe you're really going to get ' something for nothing ' from - of all places - a car dealership.

:rolleyes:

[mr_raider]

It's not as simplistic as stretching loans over longer term as indication of debt stress. I mean with the 0% or ultra low financing rate that's being offered, even if I can buy outright, I'll be a fool not to take free money (unless there was a big cash discount). I mean if the interest is low or zero for longer, take out the longest loan you can on the car and use the saved money and even if you put it in a GIC, you'll come out ahead.

Yes but do you really need to stretch it out over 7 years? You will, be upside down a significant portion of that loan. If the car is totaled, you need to cough up the difference in a lump sump. If need to sell the car for whatever reason, you need to pay down the remaining balance.

Call me old fashioned, but a loan should not last longer than the warranty period.

[spike1128]

:lol::lol::lol:

It never ceases to amaze me the number of people on this forum who actually believe you're really going to get ' something for nothing ' from - of all places - a car dealership.

:rolleyes:

That's why they don't get the cash incentives. I thought we talked about that. For giving us 0% financing, they jack up the price and don't bring it back down.

Not everyone has a chunk of cash lying around to buy outright. We got to pay interest somewhere.

[jasonkwan86]

Incentives aside, people stretching out their loan terms to 84 months with no means of paying it off at any time. Whatever car people choose to purchase, its 99% likely that the car will depreciate faster than they are paying it off resulting in negative equity.

Its great if you can get 0% over 84 months, provided you could pay the whole vehicle off in cash if you wanted to. But I have seen too many people who are driving around cars that are worth only half of what they owe. What the 84 month term really does, is gets the wrong people into those cars who are living month to month and eventually, they will realize they may have made a mistake.

[divx]

Incentives aside, people stretching out their loan terms to 84 months with no means of paying it off at any time. Whatever car people choose to purchase, its 99% likely that the car will depreciate faster than they are paying it off resulting in negative equity.

Its great if you can get 0% over 84 months, provided you could pay the whole vehicle off in cash if you wanted to. But I have seen too many people who are driving around cars that are worth only half of what they owe. What the 84 month term really does, is gets the wrong people into those cars who are living month to month and eventually, they will realize they may have made a mistake.

you can't protect stupid people from themselves, should I feel sorry for them?

[XtremeModder]

I got 2 buddies who did the 84 month thing an open loan and lump sums can be dropped on it. For the first 2 years they pay the minimum once they were a bit loose they started dropping higher monthly payments. Worked out fine for them.

+1 exactly what I'm doing

[Mark77]

84 month loan = basically a lease, with no ability to turn the car/truck back to the vendor if it turns out to be a complete lemon at the end of the lease term.

[MacBuster]

If you can't afford to be in a negative equity position, then you should be buying a used car.

Nothing wrong with a negative equity position...most people who buy new cars are in a negative equity position regardless of whether (and how) they finance. You buy a car, drive it for a month, and have realized a huge depreciation hit without having used the vehicle to the value of that depreciation.

The best way to minimize depreciation loss is to avoid it...but most people don't attempt to calculate their depreciation as a monthly expense. You can do it, but it takes some guesstimation of the future value of your car. But if more people did this, they would be more likely to buy a 1-3 year old car. I do, and as a result can justify a much more expensive car than I would otherwise buy new.

[iownyou]

leasing, financing, cash purchase... they are simply life-style choices... there is no right and wrong...
you ppl need to stop judging....:facepalm:

[gilboman]

:lol::lol::lol:

It never ceases to amaze me the number of people on this forum who actually believe you're really going to get ' something for nothing ' from - of all places - a car dealership.

:rolleyes:

it's free money in that it's yours for the taking, you won't get a better deal if you don't take it.

that's the point.

[gilboman]

Yes but do you really need to stretch it out over 7 years? You will, be upside down a significant portion of that loan. If the car is totaled, you need to cough up the difference in a lump sump. If need to sell the car for whatever reason, you need to pay down the remaining balance.

Call me old fashioned, but a loan should not last longer than the warranty period.

If you're afraid of being upside down, put a larger down payment. As for selling it, what difference does it make? just pay off the loan if you need to sell it before the loan period is up, at least you took the free money for the time you had the car.

Old fashioned is ok, nothing wrong, just financially illogical.

[Mark77]

it's free money in that it's yours for the taking, you won't get a better deal if you don't take it.

that's the point.

No its not. The dealer just marks the car up by an amount equivalent to their net present value cost of the financing.

So if you buy a $25,000 car with 0% for 7 years -- you probably could also buy that car for around $20,000 (give or take) in cash (or 3rd party, non-subsidized financing) up-front.

Many car salesmen and dealers will swear up and down that this isn't possible -- but I suggest that the buyer with cash just needs to shop around and eventually they'll find a dealer who is willing to play ball.

All the vendor *really* cares about is the NPV from the transaction. If they can maximize their NPV by wrapping some financing into the transaction, they'll do that (for >half the customers, its the only way they're going to make the sale). But that doesn't mean that someone who has cash needs to feel that taking financing is in their best interests. It may be, but that's more of a personal thing in the context of other personal investment alternatives.

[gilboman]

No its not. The dealer just marks the car up by an amount equivalent to their net present value cost of the financing.

So if you buy a $25,000 car with 0% for 7 years -- you probably could also buy that car for around $20,000 (give or take) in cash (or 3rd party, non-subsidized financing) up-front.

Many car salesmen and dealers will swear up and down that this isn't possible -- but I suggest that the buyer with cash just needs to shop around and eventually they'll find a dealer who is willing to play ball.

have you bought a car lately? your example is not real life. Cash incentives are poor to non existent , the "discount" you get from paying cash is much less than the interest free loan (free money) for the 7 or whatever years you take.

You really seem clueless in how dealerships work or you've always been overpaying to think you can get a better deal in cash other than cash incentives from manufacture.

Dealers and financing arm and automaker are different entities, a dealer will not be able to get the car cheaper to sell it for you beyond the cash incentive direct from manufacture. But hey, if you don't want free money or can't be bothered to pick up free money, that's your choice.

[Mark77]

have you bought a car lately? your example is not real life.

Yes it is. The only thing the vendor of a car cares about is how much net present value they're going to make from the sale. 0% financing is just a fancy way for the vendors to 'pretend' that the market price of their vehicles hasn't dropped substantially. If you don't understand this, then you're guilty of being gullible for the salesmans' trickery, and probably deserve a lighter wallet because of this.

Don't worry gilboman, someday you'll be disabused of the notion that its possible to get something for nothing, or that car vendors actually are in the business of 'helping' you with low interest rates... :lol:

[Cerenity]

the negative equity thing bothers me the most
i'd rather not be in the situation where the vehicle i drive is worth less than the remaining value of the debt

so for me, i just took the bus until i could buy a used car for cash. i parked the savings in my mortgage cash account until i had enough for the car, to save the 2.25% interest, then just took it out and paid for the car in full.

[Ziggy007]

I know a lot of people have jumped over the 72 and 84 month financing with Kia / Hyundai, but with 0% financing rates, it is actually a sound decision to do that.

[RCGA]

I know a lot of people have jumped over the 72 and 84 month financing with Kia / Hyundai, but with 0% financing rates, it is actually a sound decision to do that.

I'm a bit believer in paying cash (or a huge down payment), but 84 months @ 0% is pretty amazing. Especially if you plan on driving the car into the ground. If Lexus offered it (they'll never...), I'd buy a IS250 tomorrow.

[q1w2e3]

I don't get what's so bad about financing over 84 months, assuming you're not paying your bills month-to-month and getting yourself into further debt (aka. you won't be able to pay it off in the event that you do crash the car). If you can't afford to pay in cash (use all the cash incentives), there is no difference for you to be financing it over 3,5,7 years IMO. You'll be paying your loan faster if you chose 3 years, but you'd be paying the same amount in 7 years (assuming 0%) - so why not over 7 years rather than 3? --- It's different for a mortgage because the sooner you pay it off, the less interest you'll pay to the bank. But with a 0% loan, you shouldn't be itching to pay it off ASAP, you're better off leaving the money in the bank, and accumulating interest, albeit very little. Yes, the car depreciates, but the amount you're paying is the same ($25k over 3 years, 5 years, 7 years is still $25k.)

[Cerenity]

i think what people are saying is, in many of the scenarios, people arent taking the 84 month term for liquidity reasons, but rather so they can spend the savings on even more stuff. what is a great deal for someone who is fiscally responsible doesnt necessarily work for the masses

its not much different than the way some govt operates these days :P
when they find some savings or extra revenues due to whatever reason, they go and spend it on more programs instead of use it to pay down some debt

[geokilla]

Please talk to me when you all have $40k CASH (no bank loan or anything) to pay for a car. The majority of us don't and we need to get a car somehow. For the majority, leasing or financing is the answer. For us, since we keep our vehicles for over 10 years and over 200k km (S70 is in its 12th year and 283k km), we'll continue to lease or finance a car. Generally speaking, for us, financing is the way to go.


I don't get what's so bad about financing over 84 months, assuming you're not paying your bills month-to-month and getting yourself into further debt (aka. you won't be able to pay it off in the event that you do crash the car). If you can't afford to pay in cash (use all the cash incentives), there is no difference for you to be financing it over 3,5,7 years IMO. You'll be paying your loan faster if you chose 3 years, but you'd be paying the same amount in 7 years (assuming 0%) - so why not over 7 years rather than 3? --- It's different for a mortgage because the sooner you pay it off, the less interest you'll pay to the bank. But with a 0% loan, you shouldn't be itching to pay it off ASAP, you're better off leaving the money in the bank, and accumulating interest, albeit very little. Yes, the car depreciates, but the amount you're paying is the same ($25k over 3 years, 5 years, 7 years is still $25k.)

+1.

[mr_raider]

If you're afraid of being upside down, put a larger down payment. As for selling it, what difference does it make? just pay off the loan if you need to sell it before the loan period is up, at least you took the free money for the time you had the car.

Old fashioned is ok, nothing wrong, just financially illogical.

This assumes you have the liquidity to do this. If you are financing over 7 years, chances are you do not. Similarly, people who have large downpayments (cash) also don't have liquidity problems. The 7 year finance, IMHO is nothing but the sub prime mortgage version of the car world.

How many people have the discipline to calculate the payment on a 3 year vs 7 year loan, then invest the difference diligently?

[ichpen]

Some interesting discussions. At face value you are getting an interest free secured loan for 84 months. I cannot get an interest free secured line of credit nor can most people I'm betting (even sub prime doesn't come close). So best deal ever there.

Long term it's not a good idea obviously as it permits people to further stretch their overextended finances to cars they should not have been able to afford. I guess some lessons from 2008 haven't been learned yet.

[mr_raider]

I'm a bit believer in paying cash (or a huge down payment), but 84 months @ 0% is pretty amazing. Especially if you plan on driving the car into the ground. If Lexus offered it (they'll never...), I'd buy a IS250 tomorrow.

Go buy a g37. 5000$ rebate on cash purchases now!

[jdmkidd]

I think most in general people who need a vehicle everyday just write off the payment as something they will be paying no matter what so any time they can lower that monthly is gravy. Safe to say that most people will keep their cars for 7+ years especially if it's a brand new 2012 technology is a bit better for longevity, purchasing a car to me is an instant lose so I might as well get something I'd enjoy.

[iownyou]

Some interesting discussions. At face value you are getting an interest free secured loan for 84 months. I cannot get an interest free secured line of credit nor can most people I'm betting (even sub prime doesn't come close). So best deal ever there.

Long term it's not a good idea obviously as it permits people to further stretch their overextended finances to cars they should not have been able to afford. I guess some lessons from 2008 haven't been learned yet.

+1

however, 0% financing is still better than 1%... you can give me all the rebate you want, but if i cant lease or finance, i cant afford it.... which btw does not equal to i should not own it.....

[MacBuster]

No its not. The dealer just marks the car up by an amount equivalent to their net present value cost of the financing.

So if you buy a $25,000 car with 0% for 7 years -- you probably could also buy that car for around $20,000 (give or take) in cash (or 3rd party, non-subsidized financing) up-front.

Many car salesmen and dealers will swear up and down that this isn't possible -- but I suggest that the buyer with cash just needs to shop around and eventually they'll find a dealer who is willing to play ball.

All the vendor *really* cares about is the NPV from the transaction. If they can maximize their NPV by wrapping some financing into the transaction, they'll do that (for >half the customers, its the only way they're going to make the sale). But that doesn't mean that someone who has cash needs to feel that taking financing is in their best interests. It may be, but that's more of a personal thing in the context of other personal investment alternatives.

Some manufacturers/dealers will not provide a discount on a cash purchase that is equal to or greater than the NPV of the financing. They do not want to for image reasons: they do not want the impression their cars are being discounted. In that case, one would be stupid to pay cash for the car. You are paying for the financing in the transaction, of course, but that may be a better deal than the cash option. It will really depend on the model/dealer/manufacturer.

That's assuming you are set on a particular model, of course.

[Mark77]

Some manufacturers/dealers will not provide a discount on a cash purchase that is equal to or greater than the NPV of the financing.

Most, if not all will. The issue is, they don't advertise it a lot because they want the consumer to be left in the dark. That's why they create 'invoices' to give to dealers, that appear to represent the 'cash' price of the car, for example, even though the dealer receives various rebates and holdbacks which are part of the overall equation. They deliberately obsfucate things so to give their salesmen (car and financial) the upper hand.

Its pretty easy to calculate what might be closer to the 'bottom line' price that a vendor will accept -- simply call up your broker, and inquire about the yield that "Honda Credit Canada", or "GMAC " or "Ford Credit" bonds are trading at. Throw this interest rate into a NPV calculation in a spreadsheet, and you will see just how much of a discount they really are offering up.




They do not want to for image reasons: they do not want the impression their cars are being discounted. In that case, one would be stupid to pay cash for the car.


Yes, a few vendors try and protect that 'impression', but at the end of the day, cold hard cash usually wins. But as long as the dealer has convinced you that they won't take a heavily discounted cash deal -- they've effectively improved the odds of securing a higher NPV for the car. Confusion through obscurity is how car dealers work.

A trend a few years back, marketed heavily towards females, was the concept of certain dealers "only" accepting sticker price, under some assumption that the sticker price was marked down as heavily as it could be. Again, just another salesmans' tactic. Some salesmen will just refuse to believe that you'd be spending cash on a deal -- and will always talk about "payments" even if you tell them up-front that you have the cash for a purchase. Yet other salesmen will attempt to offer financial advice, as though they are a sort of professional accountant (ie: "go buy a 3% GIC and pay me full sticker for this car with 0% financing...."). The thing to keep in mind that is that *they* have spent a lot of time and effort in looking at the numbers -- while they're relying on the hapless consumer to pull up on a Saturday morning and buy a car on a whim. Indeed, buying cards has even been marketed as a lifestyle decision, or something to do for a birthday/Christmas/graduation/Father's day/etc. Again, all marketing.

[poedua]

have you bought a car lately? your example is not real life. Cash incentives are poor to non existent , the "discount" you get from paying cash is much less than the interest free loan (free money) for the 7 or whatever years you take.

You really seem clueless in how dealerships work or you've always been overpaying to think you can get a better deal in cash other than cash incentives from manufacture.

Dealers and financing arm and automaker are different entities, a dealer will not be able to get the car cheaper to sell it for you beyond the cash incentive direct from manufacture. But hey, if you don't want free money or can't be bothered to pick up free money, that's your choice.

You're only getting " free money " when the likes of Ford, GM etc. can borrow from their banks at " 0 % " and get " free money " as well ...which doesn't happen.;)

[Mark77]

You're only getting " free money " when the likes of Ford, GM etc. can borrow from their banks at " 0 % " as well ...which doesn't happen.;)

Yup, its just a bit of a scam to obscure the sort of market-based discount that they're giving on the cars, and to confuse the purchasers into making decisions that might yield them extra proceeds from selling a car. Simply because the math is too hard to work out.

Its much like a dealer that over-values a trade-in, in order to sell a new car at a higher price. The customer walks away elated that he got a big amount for the trade-in -- but in reality, this was just netted off against a worse deal on the new car.

[poedua]

Yup, its just a bit of a scam to obscure the sort of market-based discount that they're giving on the cars, and to confuse the purchasers into making decisions that might yield them extra proceeds from selling a car. Simply because the math is too hard to work out.

Its much like a dealer that over-values a trade-in, in order to sell a new car at a higher price. The customer walks away elated that he got a big amount for the trade-in -- but in reality, this was just netted off against a worse deal on the new car.

+1

It's human nature.....people see " 0% " financing and they actually automatically believe they're really getting " something for nothing " / " free money " .....it'd be laughable if it weren't so sad IMO.

[MacBuster]

Most, if not all will. The issue is, they don't advertise it a lot because they want the consumer to be left in the dark. That's why they create 'invoices' to give to dealers, that appear to represent the 'cash' price of the car, for example, even though the dealer receives various rebates and holdbacks which are part of the overall equation. They deliberately obsfucate things so to give their salesmen (car and financial) the upper hand.

Its pretty easy to calculate what might be closer to the 'bottom line' price that a vendor will accept -- simply call up your broker, and inquire about the yield that "Honda Credit Canada", or "GMAC " or "Ford Credit" bonds are trading at. Throw this interest rate into a NPV calculation in a spreadsheet, and you will see just how much of a discount they really are offering up.




Yes, a few vendors try and protect that 'impression', but at the end of the day, cold hard cash usually wins. But as long as the dealer has convinced you that they won't take a heavily discounted cash deal -- they've effectively improved the odds of securing a higher NPV for the car. Confusion through obscurity is how car dealers work.

A trend a few years back, marketed heavily towards females, was the concept of certain dealers "only" accepting sticker price, under some assumption that the sticker price was marked down as heavily as it could be. Again, just another salesmans' tactic. Some salesmen will just refuse to believe that you'd be spending cash on a deal -- and will always talk about "payments" even if you tell them up-front that you have the cash for a purchase. Yet other salesmen will attempt to offer financial advice, as though they are a sort of professional accountant (ie: "go buy a 3% GIC and pay me full sticker for this car with 0% financing...."). The thing to keep in mind that is that *they* have spent a lot of time and effort in looking at the numbers -- while they're relying on the hapless consumer to pull up on a Saturday morning and buy a car on a whim. Indeed, buying cards has even been marketed as a lifestyle decision, or something to do for a birthday/Christmas/graduation/Father's day/etc. Again, all marketing.

I sat in a VW dealership with my chequebook asking the sales manager to meet my cash price....which I had calculated as a reasonable estimate of the offer price - the NPV of the financing. They didn't come close. I was surprised, but I had to take the 0% financing option.

[Mark77]

I sat in a VW dealership with my chequebook asking the sales manager to meet my cash price....which I had calculated as a reasonable estimate of the offer price - the NPV of the financing. They didn't come close. I was surprised, but I had to take the 0% financing option.

Were you prepared to walk out and go to another dealer? I mean, obviously you gave in -- which meant that the salesman called your bluff.

[magic18]

+1

It's human nature.....people see " 0% " financing and they actually automatically believe they're really getting " something for nothing " / " free money " .....it'd be laughable if it weren't so sad IMO.

give a break...its human nature, ppl think they are all knowing....

[Spidey]

I got 2 buddies who did the 84 month thing an open loan and lump sums can be dropped on it. For the first 2 years they pay the minimum once they were a bit loose they started dropping higher monthly payments. Worked out fine for them.

Im doing the same Got a 6 year at 0%. After the dust settles and get into a payment groove, I will be increasing and putting lump sums on as available. I dont see a problem. I also didnt do a trade and will be selling privatly, which that wil go directly on the principal.

If I wanted to pay cash for the truck I wanted even used it would of taken me 4-5 years, and by that time the model I want wont be made anymore after last year.

I want to enjoy and use the truck now, not in 5 years when the major use for it is needed now.

All I know is my payments are less for a brand new truck than a used one because of the 0%. I shopped around for months and was going to do used, but after 0% hit, it didnt make sense when my payments were less per month for new than used

[CatDog]

After reading this thread, its clear a handful of you have no idea how the finance arm works with the dealership.

Do you think the NPV has any meaning to the dealer? No, it has none. Any sales person who's even entertaining this, is only doing so for the sale. What they'll really do, is look at the incentives available, and see if there's a way to put your goal together on paper.

The dealership has a cost, and incentives. This is what they go by, not the NPV. The dealership couldn't care less about the finance arm.

Sometimes their are cash rebates which are the equivalent of the interest saved by not taking a loan, other times their isn't. In When no cash incentives exist, the dealer cannot do anything to piece together your NPV offer. Impossible.

0% loans are great for the consumer, great for dealer marketing, great for the manufacture to move inventory and awful for the finance arm, IMO.

I'm surprised at how misinformed some people are on here, even with basic common sense finance. The only pride in paying cash for a vehicle when a 0% loan is available is in your head - anyone with a basic level of understanding of money would opt for the loan. It makes no sense to tie $20k+ into anything if you can pay out over time without incurring interest.

[george__]

I think with 0% long term car loans aren't a bad idea... BUT buy a car within your budget and something you know you can actually afford!

[poedua]

I'm surprised at how misinformed some people are on here, even with basic common sense finance. The only pride in paying cash for a vehicle when a 0% loan is available is in your head - anyone with a basic level of understanding of money would opt for the loan. It makes no sense to tie $20k+ into anything if you can pay out over time without incurring interest.

Basic common sense finance #1....there is no such ' real ' thing as " free money ".

Basic common sense finance # 2...if banks aren't going to finance you at no interest....then neither is a dealer or a manufacturer.

All 3 are in the business of making money.;)

If a dealer or a manufacturer is going to pay your interest for you, they have to recoup it somehow.....i.e the related interest costs are directly or indirectly ' buried ' into the purchase price of your vehicle.

In a nutshell, you're not getting ' free ' financing. :D

[CatDog]

Basic common sense finance #1....there is no such ' real ' thing as " free money ".

Basic common sense finance # 2...if banks aren't going to finance you at no interest....then neither is a dealer or a manufacturer.

All 3 are in the business of making money.;)

If a dealer or a manufacturer is going to pay your interest for you, they have to recoup it somehow.....i.e the related interest costs are directly or indirectly ' buried ' into the purchase price of your vehicle.

In a nutshell, you're not getting ' free ' financing. :D

OK, and how are you going to ' dig up ' the built in interest if there is no cash incentives?

The dealer is provided a cost, the dealer is provided finance support by the finance arm, please tell me how IF there are no cash incentives the dealer can do anything to accom. a NPV offer?

[george__]

@poedua
so the cost of the car already has the interest payments built in? But people that get 0% usually need excellent credit scores, doesn't that mean something?

[kevv]

i buy used and pay cash but i can see a day when it could be difficult to find good used 3 year old cars because of these new finance schemes.

[george__]

i buy used and pay cash but i can see a day when it could be difficult to find good used 3 year old cars because of these new finance schemes.
Aren't you scared of repair costs?

[kevv]

@poedua
so the cost of the car already has the interest payments built in? But people that get 0% usually need excellent credit scores, doesn't that mean something?

cars sales reps will sell to anyone with a job....credit scores mean nothing

[kevv]

Aren't you scared of repair costs?

never had to do major repairs except brakes ,tires, i do change the transmission fluid and antifreeze when i buy and get a mechanic to check it out...front end etc. and any visible signs of an accident..frame..so at 1/3 the cost of new its a no brainer

ps... my sister sells new cars for a living and can get the best bottom price for any new car still no go for me

[zilber]

84 months @ 0% financing is a great deal as long as you're still looking at the overall money you're spending and not just monthly payments. If you're tightening your belt to make those monthly payments then you'll likely be screwed at the end but if you have the cash to buy a $20,000 car and you can get financing for 84 months without interest then that makes much more financial sense, as you can invest that money at no cost to yourself while the car dealership is out of pocket for the next 8 years.

lol, if 0% is true than no one will pay cash for buying a car. My guess is you had never purchased a car from the dealership before.

[RCGA]

Can someone please tell me where the "catch" is with 0% financing? Especially if there isn't a cash purchase incentive?

[izzyzz]

Can someone please tell me where the "catch" is with 0% financing? Especially if there isn't a cash purchase incentive?

I am curious as well, especially since I've seen people claim that sales people told them directly -- "if you pay cash, then we can really talk". See post by HiClass in this thread (http://forums.redflagdeals.com/hyundai-questions-answers-919326/68/#post_14741417).

Granted, I seldom see 0% financing without also a cash purchase incentive.

[mmretlol]

you can't protect stupid people from themselves, should I feel sorry for them?

No, but an over-indebted consumer sector will end badly for all of us.

See: United States of America etc.

[tebore]

I don't get it either?

How can there be no free money when what you should do is take a CCC report negotiate the hell out of it never bring up financing. Then right before you sign tell them you're going to take the 0% financing on the price you just negotiated. Either way they thought you were going to do cash so you called their bluff.

I took the 48mo 0% financing option with this tactic even tho I had the money. I don't see how they could have gone lower than a CCC +3%. The funny thing is they had a $1000 financing incentive on top so I forced that at the end.

[mmretlol]

Granted, I seldom see 0% financing without also a cash purchase incentive.

Yeah, if there isn't a cash purchase incentive from somewhere (whether up front and advertised, or some sort of holdback that you don't see - ie the dealership claims extra profit from the financing arm if you pay cash when 0% is offered and no cash incentive option) then you might as well take the 0% I guess.

I suppose the truth is that while often there is an advertised "either or" option of cash incentive vs. "0% financing", there can be so many wacky setups and shennanigans that you could run into a weird situation where you might as well take the subsidized financing even if you have the cash.

I don't really like it tbh. Would much rather prefer that cars were sold for a realistic cash price and financing was done on top at realistic rates. Its clean and it makes good sense.
But that doesn't work for marketing (maybe something like you can jack up the MSRP, add 0% financing as an offset, then you can hold residuals higher ? ) and most people are unable to pay cash and financially illiterate (probably goes together) so this is the situation we have.

[ptmfr]

As mentioned by POEDUA, CATDOG and a number of other posters, the key point in their arguments is whether a cash purchase discount is available.

If a cash discount is available, the hidden cost of 0% financing is the cash discount that finance purchasers are missing out on. In this situation, cash purchasers save while only the finance purchasers pay for the cost of financing.

If cash discounts are not available, the cost of 0% financing may still be built into the cost of the vehicle. In this situation, cash purchasers help subsidize the finance purchasers.

---

The "upside-down" and "depreciating asset" argument also comes up every month but it arises from intermingling three INDEPENDENT facts. The key point in this discussion is whether the purchaser can avoid squandering the money saved from the reduced monthly payments. Please assume the cost of financing is at 0% and the interest rate for your saving vehicle is also 0% for the sake of simplicity.

1) The total purchase price is identical at 0% financing regardless of cash purchase vs. various lengths of financing. i.e. $20k car paid for in cash vs. financed at 0% for 2 years or 20,000 years is still $20k.

2) If you pay more upfront, you will owe less later on. If you pay less upfront, you owe more later. In both cases, your total amount owing will be the same.

3) Your car's depreciation curve (car value vs. time) will be identical regardless of how you paid for the vehicle.

Therefore, being "upside-down" isn't inherently bad, it only means you paid less upfront and therefore owe more later (2). It doesn't change how much you owe in total (1) or the rate at which your vehicle depreciates (3).

The fact that the car is a depreciating asset isn't inherently bad either as almost all cars depreciate and the car's car value vs. time curve will be the same regardless of how you paid for it. Your POSITION on this curve will be different at various points at time but then you are comparing apples and oranges (i.e. total cost of ownership at 4 years vs 7 years = completely different topic about the cost of purchasing new vs. old vehicles).


Please let me know if I was unclear or made a mistake.

[Mark77]

After reading this thread, its clear a handful of you have no idea how the finance arm works with the dealership.


*sigh*, and its clear to me that you have no idea how a cash purchase works, dealer rebates, under-invoice incentives, etc., etc. That are used extensively by car vendors, especially to fleet customers who generally are not interested in financing -- but also available to savvy individuals willing to buy in cash.

NPV is important, but your suggestion that "finance" incentives are completely seperate from overall sales incentives, or NPV, is just patently wrong. The only goal of the car vendor is to maximize his/her NPV from the transaction.

[Mark77]

Can someone please tell me where the "catch" is with 0% financing? Especially if there isn't a cash purchase incentive?

There is always a cash purchase incentive when 0% financing is offered, the 'catch' is that the salesman is lying to you if he claims there isn't.

Taking the 0% financing may very well get you close to an optimal NPV, but to say that one couldn't achieve the same NPV of the purchase by paying cash at a heavy discount smacks of heavy ignorance. An individual, especially with investments or a big savings account, may very well be able to use his own internal cash resources with more efficiency through self-financing.

[iownyou]

*sigh*, and its clear to me that you have no idea how a cash purchase works, dealer rebates, under-invoice incentives, etc., etc. That are used extensively by car vendors, especially to fleet customers who generally are not interested in financing -- but also available to savvy individuals willing to buy in cash.

NPV is important, but your suggestion that "finance" incentives are completely seperate from overall sales incentives, or NPV, is just patently wrong. The only goal of the car vendor is to maximize his/her NPV from the transaction.

You are missing the point! Some ppl don't have all those cash lying around..... And I don't mind paying extra interest.....That's the whole point behind monthly payments.... No one said its free...... Even if you make cash payment and paid less in total, you must be cutting back somewhere else......

[george__]

http://www.thetruthaboutcars.com/2012/07/long-term-car-loans-rising-in-popularity-north-of-the-border/#more-453910

[Mark77]

You are missing the point! Some ppl don't have all those cash lying around..... And I don't mind paying extra interest.....That's the whole point behind monthly payments.... No one said its free...... Even if you make cash payment and paid less in total, you must be cutting back somewhere else......

The financing deals facilitate sales -- but another poster is suggesting that the folks who finance are actually paying less on a NPV basis than the folks who pay cash. I find this incredibly difficult to believe, especially since balance sheet resources for car manufacturers and their finance arms always come at a cost in the marketplace. Yet the other poster continues to insist that new car vendors are willing to offer up lower NPV deals if someone takes the financing.

As another poster correctly points out -- it just doesn't pass the smell test. Of course, most folks finance rather than pay cash, but that's mostly a comment on the general insolvency of the average new car buyer these days.

[MacBuster]

Were you prepared to walk out and go to another dealer? I mean, obviously you gave in -- which meant that the salesman called your bluff.

Believe me, I was puzzled also. But it was what it was. I did not have a tremendous amount of bargaining power, as there was not a lot of inventory at the time. So I was not able to press the issue as hard as I would have liked. But the dealer did not appear to consider the NPV of a cash deal as equal to the NPV of the deal with 0% included. That may be poor business, and otherwise inexplicable...and also only one piece of anecdotal evidence.

Indeed, I was even willing to pay a small premium (as I calculated it) on the cash deal...but they still said no go. The financing was only for 36 months, so the numbers were much smaller, as well.

Frankly, I did not push the issue, as I was able to roll the HST into the financing, and then claim the provincial portion back as I immediately "exported" the car to Alberta. I didn't bother to run the numbers on what a few grand in my jeans for 36 months was worth, but I liked it anyway.

[mr_raider]

Can someone please tell me where the "catch" is with 0% financing? Especially if there isn't a cash purchase incentive?

The catch is that manufacturer is burying the cost of borrowing in the price of the car. In other words the maker sets the MSRP so that the operation turns a profit. As an individual however, you only have two choices, take the car at 0% finance, or go look at a different model. The sales manager will not sell below invoice usually.

[Mark77]

The catch is that manufacturer is burying the cost of borrowing in the price of the car. In other words the maker sets the MSRP so that the operation turns a profit. As an individual however, you only have two choices, take the car at 0% finance, or go look at a different model. The sales manager will not sell below invoice usually.

a) Holdbacks and rebates.

b) In order for what you claim to be true, dealers wouldn't be able to bid any fleet tenders that want fixed price, no-financing contracts, because, in your belief, they don't have actual access to the real pricing data. I find this hard to believe. Once upon a time, I saw tender submissions for a significant vehicle purchase (mainly 3/4 ton or "250/2500" style pickup trucks), and the pricing was dramatically below that of sticker, or what even would be seen on a so-called invoice. I mean, if the Chevy dealer is given true up-front cash pricing, and the Ford dealer has to sell everything at invoice -- and no financing is involved -- the Ford dealer has no chance in h*ll of making the sale. Obviously this isn't the case. Financing is a profit centre of the auto industry -- so if one cuts out the financing, and gets an actual no-financing price, it should be pretty much optimal. Of course, as others here have alluded, salesmen will sh*t their pants, swear up and down that they can't feed their kids, etc., but just remember -- that's a salesman's trick. Any sale for a NPV greater than cost out the door (including all rebates/holdbacks/netbacks netted out) still earns the salesman a commission. That's not to say you can get them down to $100 commission for showing you a car -- but the $3000+ they often will pull out of a single car sale largely 'hidden' by financing certainly can be reduced significantly.

[RCGA]

But now we're getting into a situation where the price is going to vary based on salesman, sales manager, dealer, day, month, year, corporate goals, competitors goals, etc etc.

And it still doesn't negate the fact that if you need a car and don't have the OTR cash on hand, you have no other option but to finance at least some of it.

You're better off using CCC for a few cars, finding a OTR price you feel is fair and find a salesman who will play ball.

[Supercooled]

Payment plans are ridiculous, especially the 84 month ones, thats SEVEN years of payments. Of course, the low low payments are enticing, but when you realize you're paying it over seven years, the big picture was obscured by the rates and payment itself.

I'm not going to lie, I used to think like that, which was extremely short-sighted. I've been eyeing a new vehicle for the past while, it'll definitely be paid off at the spot.

There's invariably going to be two camps on the subject of buying it outright or financing. With the influx of 0% financing, it's a no brainer.

People who finance long terms like Future Financing which is EIGHT YEARS, do so because they want a nicer car than their budget allows. Reminds me of the thread about seeing more luxury cars on the road than compared to the past; this is one reason why. People are simply buying beyond their means allows.

That said though, there isn't a strict formula of how much you should be spending, 10% or 100% of your income. It's all down to how you want to spend your money.

[poedua]

As mentioned by POEDUA, CATDOG and a number of other posters, the key point in their arguments is whether a cash purchase discount is available.

If a cash discount is available, the hidden cost of 0% financing is the cash discount that finance purchasers are missing out on. In this situation, cash purchasers save while only the finance purchasers pay for the cost of financing.

If cash discounts are not available, the cost of 0% financing may still be built into the cost of the vehicle. In this situation, cash purchasers help subsidize the finance purchasers.

Bingo !

The notion that " 0 % " financing somehow really represents " free money " is simply a fairy tale .....it's nothing but a slick marketing ploy ' gimmick ' to dupe gullible and unsuspecting consumers who are seemingly genetically drawn to every possible ( no matter how ' far fetched ' ) getting ' something for nothing ' claim...... like moths to a flame ! ;)....:lol::lol::lol:

[bcbgboy13]

Basic common sense finance #1....there is no such ' real ' thing as " free money ".
Basic common sense finance # 2...if banks aren't going to finance you at no interest....then neither is a dealer or a manufacturer.
All 3 are in the business of making money.;)
If a dealer or a manufacturer is going to pay your interest for you, they have to recoup it somehow.....i.e the related interest costs are directly or indirectly ' buried ' into the purchase price of your vehicle.
In a nutshell, you're not getting ' free ' financing. :D

You should stop living in the past as nowadays the cost of the financing is much lower. Even the shady used card dealers can finance at 4.99% - so the "cost" of financing is much lower for the big name dealers and the big banks with end result being lousy cash incentives of only 1k-2k or similar...
Considering that 7 years are 2486-2487 days your out of pocket cost is only a few pennies a day... so many people especially the young one will jump on that opportunity. After all they want to live and enjoy life NOW and not later and you cannot do anything about that.

[mr_raider]

a) Holdbacks and rebates.

b) In order for what you claim to be true, dealers wouldn't be able to bid any fleet tenders that want fixed price, no-financing contracts, because, in your belief, they don't have actual access to the real pricing data. I find this hard to believe. Once upon a time, I saw tender submissions for a significant vehicle purchase (mainly 3/4 ton or "250/2500" style pickup trucks), and the pricing was dramatically below that of sticker, or what even would be seen on a so-called invoice. I mean, if the Chevy dealer is given true up-front cash pricing, and the Ford dealer has to sell everything at invoice -- and no financing is involved -- the Ford dealer has no chance in h*ll of making the sale. Obviously this isn't the case. Financing is a profit centre of the auto industry -- so if one cuts out the financing, and gets an actual no-financing price, it should be pretty much optimal. Of course, as others here have alluded, salesmen will sh*t their pants, swear up and down that they can't feed their kids, etc., but just remember -- that's a salesman's trick. Any sale for a NPV greater than cost out the door (including all rebates/holdbacks/netbacks netted out) still earns the salesman a commission. That's not to say you can get them down to $100 commission for showing you a car -- but the $3000+ they often will pull out of a single car sale largely 'hidden' by financing certainly can be reduced significantly.

In my lifetime of buying cars, the best I got out of a salesman is about 200$ above invoice. For luxury cars, very few will sell at less than 1000$ above invoice.

[PPiL]

In my lifetime of buying cars, the best I got out of a salesman is about 200$ above invoice. For luxury cars, very few will sell at less than 1000$ above invoice.

Working for a parallel industry, everything Mark said is true in theory.

When the dealer sells you at invoice (and pass you the freight cost), they still get the wholesale (volume) discount and the holdback which can be substantial.

The manufacturer probably finance the unit to the dealer (pays its interest) for a determined number of months after which the dealer will have to start paying its own interest on the unit.

So if you find a desperate dealer, just before he starts paying interest on the unit, you might be able to get invoice, even lower. But it all depends on whether or not he thinks he can find another buyer for his car.

As for the financing, I'm not sure exactly how the auto industry is working for that, but my gut feeling is that the manufacturer (the corporate entity) is making the money on that and not the dealer. The dealer might get a commission, or an additional margin point, but I don't think it's a simple NPV calculation for him. The gross price to the dealer is probably grossed up to included the "free money" cost to the manufacturer, so you would have to negotiate with the manufacturer if you wanted the equivalent saving on a cash purchase, the dealer probably can't do much.

[poedua]

You should stop living in the past as nowadays the cost of the financing is much lower. Even the shady used card dealers can finance at 4.99% - so the "cost" of financing is much lower for the big name dealers and the big banks with end result being lousy cash incentives of only 1k-2k or similar...

Considering that 7 years are 2486-2487 days your out of pocket cost is only a few pennies a day... so many people especially the young one will jump on that opportunity. After all they want to live and enjoy life NOW and not later and you cannot do anything about that.

I am simply pointing out that " 0 % " financing is not synonymous with " free money "

[poedua]

As for the financing, I'm not sure exactly how the auto industry is working for that, but my gut feeling is that the manufacturer (the corporate entity) is making the money on that and not the dealer. The dealer might get a commission, or an additional margin point, but I don't think it's a simple NPV calculation for him.

The gross price to the dealer is probably grossed up to included the "free money" cost to the manufacturer, so you would have to negotiate with the manufacturer if you wanted the equivalent saving on a cash purchase, the dealer probably can't do much.

Exactly ! :D

[tebore]

How realistic is being able to negotiate directly with the manufacture?

If you cant then it's free money.

[RCGA]

How realistic is being able to negotiate directly with the manufacture?

If you cant then it's free money.

But be careful, there may be hidden costs in the dealers invoice price that the employees themselves don't even know about.

FUD FUD FUD!!!

[tebore]

But be careful, there may be hidden costs in the dealers invoice price that the employees themselves don't even know about.

FUD FUD FUD!!!

Hidden costs that even the manufacture doesn't know about baked in by the suppliers.

[Rainne]

People pretty much live paycheque to paycheque these days, it's really not so bad.

Money comes at a slow trickle, then is consumed.

[Spidey]

I had a conversation with Poedua on another thread abut 0%. And all my examples she couldnt find where there charge the interest and then just decided to ignore the thread because she lost her footing.


My truck I bought had cash incentive and 0%. The cash incentive brought the truck down to an amount that was either equal or less than the same 2011 used truck. The advantage is with the 2012, I got 0% interest and a lower payment per month, compared to the used at say 5-6% interest.

So I got a brand new truck for cheaper or as cheap as a used, and 0%. Im no finance wizard, but to me, isnt that better that 5% on used

This isnt taking into account a 100% cash purchase though, but even so, I wouldnt of gotten then new one for much less after the rebate and the price haggling I did over 3 different dealers.

I gave her an example of needing a fridge and a store offers 0%. Cash or credit, the origfinal cost is the same. so $1500 up front or $1500 after 3 months no interest. I asked her to find me the extra money I spent. I use that example because I have done it in the past. Her only answer, there is no such thing as free money. Yet she could never find me the extra money I spent on the $1500 fridge.

I use the 0% all the time if its not going to cost me extra. If its $1000 now, or 3 payments of $333.33 over 3 months, why not do the payment route. If a peson needs an emergency appliance, its a good thing to have if you use it correctly

[poedua]

I had a conversation with Poedua on another thread abut 0%. And all my examples she couldnt find where there charge the interest and then just decided to ignore the thread because she lost her footing.

That's because I didn't look for it...if you recall, I'd alluded to the fact that your insinuation there had to be some sort of proxy ' interest ' line item buried somewhere in the MSRP related documentation that a consumer can uncover was utter nonsense.

[Spidey]

That's because I didn't look for it...if you recall, I'd alluded to the fact that your insinuation there had to be some sort of proxy ' interest ' line item buried somewhere in the MSRP related documentation that a consumer can uncover was utter nonsense.

But I gave you numbers, and actual numbers from examples of things Ive done. Although the numbers were rounded up for easy math

$1500 now, or $1500 in payments over a year. Where are you losing money or paying extra money? Cash or charge, its $1500

[PPiL]

I had a conversation with Poedua on another thread abut 0%. And all my examples she couldnt find where there charge the interest and then just decided to ignore the thread because she lost her footing.


My truck I bought had cash incentive and 0%. The cash incentive brought the truck down to an amount that was either equal or less than the same 2011 used truck. The advantage is with the 2012, I got 0% interest and a lower payment per month, compared to the used at say 5-6% interest.

So I got a brand new truck for cheaper or as cheap as a used, and 0%. Im no finance wizard, but to me, isnt that better that 5% on used

This isnt taking into account a 100% cash purchase though, but even so, I wouldnt of gotten then new one for much less after the rebate and the price haggling I did over 3 different dealers.

I gave her an example of needing a fridge and a store offers 0%. Cash or credit, the origfinal cost is the same. so $1500 up front or $1500 after 3 months no interest. I asked her to find me the extra money I spent. I use that example because I have done it in the past. Her only answer, there is no such thing as free money. Yet she could never find me the extra money I spent on the $1500 fridge.

I use the 0% all the time if its not going to cost me extra. If its $1000 now, or 3 payments of $333.33 over 3 months, why not do the payment route. If a peson needs an emergency appliance, its a good thing to have if you use it correctly

I think what she/he meant by there's no free money is that, let's say we use your fridge example, the 1,500$ at 0% could probably be a 1,200$ fridge cash, or you can finance it at 3% for x months. Instead they include the financing cost in the price and tell you that the financing is free and the fridge is 1,500$.

So yes, at 0% and no equivalent cash rebate, you should use the financing and spread the payments overtime, but that doesn't mean the financing is free, it only means that it is included in the price and they market it as being free because people will think they have a better deal.

It's the equivalent of having the A/C included in the base trim. Does that mean that the A/C is free? No, it just means that it is included in the price of the base trim and you have to buy even if you don't want it.

[poedua]

I gave her an example of needing a fridge and a store offers 0%. Cash or credit, the origfinal cost is the same. so $1500 up front or $1500 after 3 months no interest. I asked her to find me the extra money I spent. I use that example because I have done it in the past. Her only answer, there is no such thing as free money. Yet she could never find me the extra money I spent on the $1500 fridge.

I use the 0% all the time if its not going to cost me extra. If its $1000 now, or 3 payments of $333.33 over 3 months, why not do the payment route. If a peson needs an emergency appliance, its a good thing to have if you use it correctly

OK..........now....put that exact same fridge example in the context of buying a new 2012 car.

[poedua]

I think what she/he meant by there's no free money is that, let's say we use your fridge example, the 1,500$ at 0% could probably be a 1,200$ fridge cash, or you can finance it at 3% for x months. Instead they include the financing cost in the price and tell you that the financing is free and the fridge is 1,500$.

So yes, at 0% and no equivalent cash rebate, you should use the financing and spread the payments overtime, but that doesn't mean the financing is free, it only means that it is included in the price and they market it as being free because people will think they have a better deal.

It's the equivalent of having the A/C included in the base trim. Does that mean that the A/C is free? No, it just means that it is included in the price of the base trim and you have to buy even if you don't want it.

+1

Bingo !

[Spidey]

I think what she/he meant by there's no free money is that, let's say we use your fridge example, the 1,500$ at 0% could probably be a 1,200$ fridge cash, or you can finance it at 3% for x months. Instead they include the financing cost in the price and tell you that the financing is free and the fridge is 1,500$.

So yes, at 0% and no equivalent cash rebate, you should use the financing and spread the payments overtime, but that doesn't mean the financing is free, it only means that it is included in the price and they market it as being free because people will think they have a better deal.

It's the equivalent of having the A/C included in the base trim. Does that mean that the A/C is free? No, it just means that it is included in the price of the base trim and you have to buy even if you don't want it.

Thing is if its $1500 cash or credit, whats the difference. Ive done the cash thing, and then said what does it cost to charge it, same amount

Now if its less for cash for a fridge then charge, I see the difference. But $1500 now is $1500 in 3 months. Its still $1500, youve just split up the payments

[Bskll]

Thing is if its $1500 cash or credit, whats the difference. Ive done the cash thing, and then said what does it cost to charge it, same amount

Now if its less for cash for a fridge then charge, I see the difference. But $1500 now is $1500 in 3 months. Its still $1500, youve just split up the payments

plus, with inflation, $1500 over 3 months is worth less than $1500 now, meaning you come out 1-2% per year.

yay for finance.

[divx]

People pretty much live paycheque to paycheque these days, it's really not so bad.

Money comes at a slow trickle, then is consumed.

that's not a good way to live

[riccd2001]

alitttabita deja-vu for those of you still confused about 0% marketing...

Ten years ago towards the year-end 2002, GM offered zero per cent "financing OAC" for up to 48 months. But if you wanted to pay cash up front, that was OK but the dealer incentives were applied equally to either option, together with their 'Wheel-Of-Fortune' version of spinning for more dollars off before deciding on the payment option. Guess what people did back then, when GM forgot to exclude the free interest option from incentives? ;)

Maufacturers have since learned from that basic goof by GM Marketing. Now 0% offers include a hidden allowance for 'cost of a 0% rate' for 60, 72, or 84 months.:cry:

[Toolatecrew]

It all depends on the programs the dealer is offered from the manufacturer. I looked at a Mazda 3 (did n0ot buy though). 0% up to 84months. Had the CCC report. That should show you any programs also. There is no cash purchase program the Mazda 3. There is about 1500 between msrp and invoice.

If you choose 36% at0 % there is still 1500 between invoice and msrp to negotiate. If you choose 84 months at 0% there is still 1500 to negotiate. There is no mechanism for the dealer to offer more than 1500 off regardless of how many months you finance. Its nt provided to them. The manufacturer will not rebate them and extra 500 if they get you to finance for 36 months. The idea that there is some hidden pool of money doesn't make sense. I agree that in reality the cash purchasers are "subsidizing" the finance purchasers. That doesn't change the fact that you can only take advantage of incentives that are offered. Its fine if you choose to pay cash vs taking the 0% offered but you may no get enough of a dicount to offset the declined financing because the dealer simply isn't offered an alternative.

On the flip side I looked at Fords also. The discounts on Fusions were massive. 6 K plus. but there was NO 0% offered. 5.79 was the best rate. There is no way for Ford to say don't take the 6 K discount but we'll give yo 0% instead. its simply not something the dealer can do.

[Spidey]

plus, with inflation, $1500 over 3 months is worth less than $1500 now, meaning you come out 1-2% per year.

yay for finance.

But I still own the item, and unless the item is going to be less money in 3 months, and if its needed, why wait to save up the initial $1500. Im talking an emergency item that breaks.

I guess it all breaks down to if a person wants to wait and save and pay cash. Somethings you can, somethings you cant. My truck in the 5 years it would take to save to pay cash, I will have gotten 5 years of use out of it.

Im still careful with money, dont spend it foolishly, but Im getting to the point in my life Im sick of worrying about every nickle and dime in case it might be cheaper later. Ive been burnt that way before, waiting and the price jumps, or its out of stock and doesnt exist anymore.

at 0%, am I paying extra somehow, who knows, according to many on here the 0% is costing me 100 million dollars more over the term. But paying cash used wasnt an option, and even if it was, I keep my vehicles for a very long time. Depreciation doesnt bother me, although this is the first new vehicle I have bought in almsot 20 years.

Saving for 5 years to get it wouldnt work for me, becaue in 5 years our household will be going through a change where we might not even need this vehicle. So I got it now to use NOW, not later when its not needed as much

To each their own, but I got the vehcile at less than 1% over invoice according to Car Cost Canada. I shopped for months, got 3 dealers fighting for my business, and walked out with a new vehcile that will cost me less than use over 5 years finance wise

[poedua]

To each their own, but I got the vehcile at less than 1% over invoice according to Car Cost Canada. I shopped for months, got 3 dealers fighting for my business, and walked out with a new vehcile that will cost me less than use over 5 years finance wise

What make and model of vehicle did you buy ?

[Spidey]

What make and model of vehicle did you buy ?

2012 Chev Avalanche, if I waited 5 years the newest model would be a 2013 I could get, making it a 4 year old vehcile minimum since they are end of life 2013.

Could Ive gotten a 2007 - 2011, Im sure I could of, if I found one I liked. Either used were really used, or didnt have the options I wanted. Since this will be minimum a 10 year truck, buying new made sense to me.

And anything used that would work, the payments were more per month due to the interest rate from a brand new truck. At the end of 5 years of payments, a new truck will cost me less at the end of the term than a used. I dont see really how I could of done any better

[poedua]

2012 Chev Avalanche, if I waited 5 years the newest model would be a 2013 I could get, making it a 4 year old vehcile minimum since they are end of life 2013.

Then it's a good thing you keep your vehicles for a very long time and depreciation doesnt bother you, cause in terms of resale value, the Chev Avalanche is below average - i.e it only has a 2* residual value ( where the top 5* is excellent ) ALG rating.

[Spidey]

Then it's a good thing you keep your vehicles for a very long time and depreciation doesnt bother you, cause in terms of resale value, the Chev Avalanche is below average - i.e it only has a 2* residual value ( where the top 5* is excellent ) ALG rating.

Actually, out of trucks, the Avalance holds onto its value a lot better researching used since January.

Please show me examples of how it is below average. Comapred to what, trucks, other cars, vans, etc. Its a niche vehicle out of trucks, and with it going away as of 2013, I can see them having a very high resale since they will be limited to buy used

I have never cared about depreciation or resale after I started buying vehicles. I buy them to use and to use until not needed, or something bad happens to them.

Ive owned very few vehicles the last 20 years. Owned a VW Golf for 14 years until an accident totaled it. Owner our Montana minivan for 9 years until we decided we didnt need a minivan. That is now a 2009 Taurus X that we have had for 3.5 years, and plan on having for another 5 at least. My current truck was an upgrade from a mid size I owned for 6.5 years. I wouldnt be upgrading if we basically didnt outgrow it. And now I have my 2012

Out of these vehciles 2 were new, 2 were used. Did that because of the deal I got, or if used was exactly what I was looking for.

[Devious]

I just picked up a Venza and did the 0% 60 month option. By financing vs cash price, I gave up a $3500 incentive. By my numbers, I would have had to get a financing rate of less than less than 3.4% to make up for the $3500 lost. Unless I was coming around a time where I could break my mortgage, there isn't going to be an unsecured loan of 3.4%.

I think the long term financing kills people that either a> like to change cars a lot or b> wreck the car between 24 months and 60 months. I kept my last car 11 years, wife kept her car 6 years (but it was 3 yo when we bought it), so I don't worry about category a. I also extended the warranty to 72 months so I'll actually have a comprehensive warranty beyond the loan.

[Xeros]

^seems like common sense right? but can we assume the masses are at our intelligence level?

If RFD is considered average intelligence... then at least 50% of the population is stupider than us.

[Bskll]

i'm saying its better to take 0% over 3 month than paying $1500 up front, because due to inflation, the $1500 that you spend over 3 month actually has less value than an initial chunk of $1500, meaning your coming out ahead by at least 2-3% per year. Spidey learn to read.


But I still own the item, and unless the item is going to be less money in 3 months, and if its needed, why wait to save up the initial $1500. Im talking an emergency item that breaks.

I guess it all breaks down to if a person wants to wait and save and pay cash. Somethings you can, somethings you cant. My truck in the 5 years it would take to save to pay cash, I will have gotten 5 years of use out of it.

Im still careful with money, dont spend it foolishly, but Im getting to the point in my life Im sick of worrying about every nickle and dime in case it might be cheaper later. Ive been burnt that way before, waiting and the price jumps, or its out of stock and doesnt exist anymore.

at 0%, am I paying extra somehow, who knows, according to many on here the 0% is costing me 100 million dollars more over the term. But paying cash used wasnt an option, and even if it was, I keep my vehicles for a very long time. Depreciation doesnt bother me, although this is the first new vehicle I have bought in almsot 20 years.

Saving for 5 years to get it wouldnt work for me, becaue in 5 years our household will be going through a change where we might not even need this vehicle. So I got it now to use NOW, not later when its not needed as much

To each their own, but I got the vehcile at less than 1% over invoice according to Car Cost Canada. I shopped for months, got 3 dealers fighting for my business, and walked out with a new vehcile that will cost me less than use over 5 years finance wise

[Spidey]

i'm saying its better to take 0% over 3 month than paying $1500 up front, because due to inflation, the $1500 that you spend over 3 month actually has less value than an initial chunk of $1500, meaning your coming out ahead by at least 2-3% per year. Spidey learn to read.

Sorry just mis-read.