It is not at all uncommon for car companies and car dealers today to attract an interest-free car loan and it may seem incredibly generous at first glance. But as with so much else, the “too good to be true” principle applies once again … Let me explain why.
That is, and always will be, the very rate at which all lenders make the most money. Without interest, there would have been no market for loans as banks and lending institutions had gone plus-minus-zero. Then it is quite difficult to run a profitable business. It may therefore sound a little awkward that some may offer an interest-free car loan if they do not make money on it. But this “lost” money is earned in other ways.
You can expect to pay an overpriced price
The car dealer must make a profit for every car they sell. It’s simple logic. But this will not be possible when you buy your new car with the benefit of escaping the interest on the borrowed money. For that very reason, you can expect to pay an overpriced as interest will be added to the base price before the car is put up for sale. Should you start trying to bargain down the price slightly, you will face hard resistance immediately. Cars that are sold with interest-free loans are almost impossible to get down in price.
This is why many car buyers have a good track record and in some cases it becomes cheaper to finance their car purchase with, for example, a mortgage loan. The interest rate is usually very high, but in the end the loan cost is still cheaper for you! It is worth thinking an extra time.
Sometimes it can differ as much as 10-20%
An interest-free car loan sounds like a really good deal on your part, but like I said, it’s a little too good to be true … One question, which you should really ask your car dealer, is what the car’s price would have ended up with if you had paid cash. A car dealer is like a politician, they will talk on forever and when you think you have got an answer you have not really become wiser. So you can expect a long drawn out answer. But in most cases the price can land at 10-20% less! A car whose cost is for example USD 300,000, you can save between USD 30,000-60,000!
So think about this before you do anything rushed. The word interest-free has a tendency to attract curious guests, but that does not necessarily mean that your car loan will become cheaper in the long run. Rather the opposite.
Older models and display examples
You can’t expect to buy this year’s car model without paying interest. This usually only applies to older car models and display specimens that have stood out in the store. The reason for this is that people who want to buy a brand new car can either pay cash or they have something to put in security for their loan.
Helpful Hint – Pretend to pay in cash
If you are aiming to get an interest-free car loan then you should first and foremost tell the car dealer that you should buy your new car with cash. When you have bargained clearly for the price (because you should always try to do so), you should ask questions if an interest-free car loan would have been possible in this situation. It’s a gamble, but usually the car dealer doesn’t want the deal to go to the grave if you wish. In this smart way, you can therefore negotiate a loan without interest.