What a 0% loan says about you

You know American values are changing when your friend brags more about his 0 percent auto loan than the new, $25,000 car he just bought.

Be happy for your friend! He’s got brand new wheels and – thanks to automakers’ restrictions typically used to qualify for a no-interest loan or cash back offer – you now know more about your friend than ever before:

  • To get the incentive, he needed great credit – typically a 680 FICO score or higher.
  • He also had to have a good job and/or steady income.
  • To get the incentive, he probably did not negotiate a lower sales price.
  • He borrowed from the automaker’s finance division – not his bank or credit union.
  • His monthly loan payment may be substantial if he accepted the typical three- or four-year loan term offered for such incentives.
  • His new car may be a model and design that's on its way out of production.

With automakers recovering from the publicity of massive recalls and federal bailouts, buying a new car has rarely been as sweet as it is in 2010. Dealers are offering 0 percent financing, up to $5,000 cash back, generous manufacturer warranties, and no-questions asked trade-ins to draw buyers into the showroom.

"Automakers are offering better incentives to sell cars, and consumers are getting some great deals," says David Flood, manager of the STCU Lending Center, which provides members with millions of dollars in new and used car loans every year.

But 0 percent and cash-back deals are not for everyone. If your family budget is tight, you may be better off with a used car or a conventional loan from STCU. For example, a $20,000 loan, with a 0 percent rate paid back in three years, would cost you $556 per month. The same amount, with a 4 percent rate over five years, would be a more affordable $368 per month.

Cash back also can be attractive, but not always as good as negotiating a lower sales price and finding a lower loan rate. If you applied $5,000 cash back from the dealer to a $30,000 vehicle – and borrowed the remaining $25,000 with a 6 percent interest rate over five years – your monthly payment would be about $489, and your total cost $29,349.

But if you negotiated the sales price down to $26,000 and secured a five-year, 4 percent loan, your monthly payment would be about $479 and your
total cost $28,730.

New car incentives have never been better. Shop wisely!

5 tips for car shopping

Here are five ideas for getting the best deal possible when shopping for your next vehicle:

  1. Get pre-approved first by applying online at www.stcu.org/apply. Even if you don't use the loan, you'll know how much you can borrow.
  2. Negotiate the price of the car independent of the loan terms. Packaging the price, trade-in value, and financing muddies the negotiations and could cost you more money.
  3. When calculating your monthly car budget, figure in the cost of insurance, fuel, and regular maintenance.
  4. Get dealers across town or in different cities bidding on the make and model you want. This extra effort can save you thousands of dollars.
  5. If you're not sure about a dealer's offer, take it to an STCU loan officer for a second opinion. We're highly skilled at understanding numbers.

Like to figure out things for yourself? Use an STCU borrowing calculator. 

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This Credit Union is an Equal Opportunity LenderEqual Opportunity Lender © 1995-2010 Spokane Teachers Credit Union This credit union is federally insured by the
National Credit Union Administration