Everything you ever wanted to know about the "0% Interest Auto Loans Available Car Dealer Scam" but didn't know who to ask. Also known as the "Low Interest Loan Scam."
You will see or hear this in car dealers advertisements. Dealers use the 0% interest advertising scam to get potential car buyers hyped up and interested in buying a new car.
These consumers believe they will be able to save money if they finance a car at a 0$ interest rate.
This dealership advertising trick is a simple play on words. Unless it's otherwise stated in the disclaimer of the car dealer's advertisement disclosure. To qualify for the special APR of 0% you must have excellent credit and the rate may only be available for a shortened term of 12-36 months.
A shorter term makes the payment on a new car unaffordable for most people and they must extend the car loan term to get the payment down to their budget. Of course the rate is higher the longer you extend the term of the loan.
Definition of the 0% Interest Scam
Many manufacturers' offer 0% interest financing to their customers from time to time. If you're looking to take advantage of this opportunity, make sure you read the fine print and know the manufacture's program guidelines.
The 0% interest advertising scam is used to lure potential customers to a dealer's lot. A dealer will advertise 0% interest available in their local advertising. They make it look like the offer is available to everyone and anybody. Car buyers assume the 0% interest is available on all makes and models and also any term.
In reality the dealer may only have the 0% interest offer on certain makes and models and the special rate is, unless otherwise stated, on a very short finance term, normally 12 to 36 months. The consumer also has to have excellent credit to qualify for the program also.
Dealers are aware most people cannot afford the high monthly payment that comes with short term financing when buying a new car from a dealership. The goal of the dealer is to have the customer come in off the 0% interest advertisement, fall in love with a vehicle and then choose a longer finance term with a higher interest rate.
Use this handy Car Payment Estimator to estimate the payment on any vehicle.
How the Low Interest Advertising Scam Works
You see an ad on television promoting "0% interest available this weekend only." You decide to take advantage of the additional savings and visit the dealership.
You know you have perfect credit and ask the car salesman if 0% interest is available on the car you're looking at. He says, "absolutely it is." However he never discloses to you it's only for a short finance term.
You picked out a vehicle, agreed to the price and now patiently wait to meet with the finance manager. You ask your salesman if you qualified for the 0% interest and he says, "you sure do, your credit is perfect." Everything seems to be going to plan all that's left is the paperwork, it's now time to relax ~ BIG MISTAKE!
The car salesman and his sales manager have already prepped the finance manager you're interested in the 0% interest rate. This lets the finance manager know what's important to you and prepare for your objections in advance.
You're greeted by the finance manager and are led to his lair (I mean office). He starts with a little chit-chat then brings up that you qualify for the 0% special interest rate and then confirms with you that's what brought you out to buy a car today. Here's where it starts getting nasty.
A dealer will let you go through the entire car buying process not disclosing to you the 0% interest is only available for a very short finance term. The dealer knows this technique is the most effective when you don't find out until right before you're about to sign the paperwork because mentally you've already bought the car and are just ready to get out of there.
While going over your paperwork, the finance manager states your payments will be $958.33 a month. This comes as a shock to you and you ask, "I thought I qualified for the 0% interest rate?" The finance manager says, "you do but for you to get 0%, you must finance your vehicle for no longer than 24 months."
Don't think this is an accident, the entire presentation by the finance manager is premeditated. He does this many times a day. He's prepared for you to lose your mind when you hear the outrageous payments.
The dealer is counting on by this point you've fallen in love with the car and will decide to extend the financing term out to make the payments more affordable for your budget. The finance manager is already prepared and will show you several different options with higher interest rates to choose from, guaranteed to make the dealership more money.
Making a car buying decision based on emotions after being side swiped by this advertising scam can be financially dangerous. You can end up paying thousands of dollars in unnecessary interest charges and bank fees.
Only finance a car with a dealership as a last resort. Get a pre-approved car loan online before contacting a car dealership. You can also use your pre-approval to negotiate a better deal with the dealer.
How to Avoid the 0% Interest Advertising Scam
- Always read the fine print in a car dealer's advertising. Depending on how the 0% is advertised, there must be a disclaimer of any special stipulations to the offer. Read more about deceptive dealer advertising techniques.
- Before car shopping check current interest rates with your bank, local credit union or for the best deals online auto finance lenders. You can use the information from these companies to determine what interest rate you qualify for and you'll arm yourself with a powerful negotiation tool when negotiating with a car dealer.
- Get a pre-approved car loan in place from an online company we recommend such as myAutoloan. If you have marginal or bad credit apply with an online company such as InstantCarLoan or 1-800-FreshStart before visiting a car dealership.
- Don't let the finance manager know more about your credit history than you do. Get and review your personal credit reports and scores from a reputable online company such as MyFreeScoreNow before applying for any kind of loan.
- Carefully read and understand everything you sign.
- DO NOT let a car dealer or salesperson talk you into something you don't want to buy or can comfortably afford.
Now that you know how to recognize and avoid the "0% Interest Car Loan Scam," familiarize yourself with other common car buying scams committed in dealerships nationwide.
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