The "scam" on the low-interest rates, lies in the fine print. If you miss a payment or take longer than the loan term to pay it off, then you will get hit for all the (secret) interest for the full term of the loan.
I'm not sure why people keep making this comment. That is not how finance contracts work with automobiles in the US. Maybe in Australia? Here in the US, if you miss or are late with a payment they hit you with a late fee. But there is no other penalty. And "secret" interest would obviously violate the Truth in Lending Act.
This usually applies to promo 0% fina. on credit card purchases. Dont pay it off by the promo end date and they hit you with all the deferred interest. Doesnt usually apply to auto loans
One more. Teaching my son a lesson about scams when he was 5 years old. Told him I would bet him $5 that I could jump higher then a house. He was excited about getting the $5. He thought no way. So we put our jackets on and go outside and I jump about a foot high. I said see I told you so. He said you didn't jump higher then the house. Yes I did,. Did you see the house jump? He was pretty mad at me, but he never forgot it.
Let me take a stab at the “negative” interest rate. I bought a car, qualified for 0.0%. As I was signing my wife called, told me to put as much as I could on my Discover card. Discover had a program that month where we got a bit more of cash back. I put 10K on the card, financed the rest. Paid off the card before the interest free time was up and made cash back on it.
I suppose the other possible use for a negative interest rate could be if the terms of the credit required you to have them service the vehicle at regular prices. It could also mean that as a company I could spread out the income and profits from a sale over a number of years and have a guaranteed income over that time and not pay a large tax bill on the profits in year one. But inflation could probably screw this up if it is much above zero during the credit term. Either way, if buying anything with multiple offers of interest and various finance sources is to just run the numbers with a clear head before signing on the line. In the UK you have a 14 day cooling off period on any finance deal to get out of it without penalty too.
The 0% financing is a dealer's lure, not a scam on the level of auto sales, but it is an opportunity to entice you into a price with less or even no discount. HOWEVER, 0% interest rates is completely a scam that is raping and pillaging the broad population at large. While we are all immersed in this awful cesspool of governmental finance and monetary "policy", it would be a huge waste to fail to take advantage of the 0% financing and instead pay cash for something with a price that is completely INFLATED precisely BECAUSE of the 0% rates.
If you have cash to buy a car outright, the average (non-A-Plan and non-0% qualifier) buyer shouldn't tell the dealer this because it does substantially reduce your negotiation position. A lot of money is made from the loans, so dealers are willing to negotiate pricing and other things when they think they'll make more back in the long run on the loan. What to do instead (again, if 0% financing isn't available to you) is to negotiate the price and perks, with reasonable loan terms (including making sure you don't have an early payment penalty). Make your required down payment and drive your car off the lot. Pay off the car loan at the first payment. You will have nothing (or almost nothing for loans with daily accrual) in interest, and your best possible price.
That’s great if you feel like buying a car with 10-20k miles on it and your planning on selling your used car within a few years, otherwise there’s really no point in worrying about depreciation unless it’s for a self-employed tax purposes.
@@michaelesq.atpcfii.9862 car maybe not. Truck absolutely. They hold their value really well anymore, but new they are HELLA expensive. Give it 2-3 years it'll drop 10 grand, drive it 10 more it'll drop another 10, bought the diesel for 30k sold it for 20k 😂 Unless it's an electric truck, in which case your battery is shot in 8 years, RIP your range.
I've seen payday loan places charge way more than 24.99%. They can and do charge upward of 300% interest. It's ok if you can pay it off in less than 30 days but if you go over that they are very hard to pay back.
Sit down and run the numbers. Mileage will vary. Sometimes it's better with interest free loan sometimes it's better with rebates. But you HAVE to run the numbers yourself.
@@stevelehto Your example is a little different due to the A plan. For the general public that don't have that option, many times the offer will be 0% interest OR x amount off. Which in that case, you need to calculate the cheapest route. The guy who was arguing with you said it incorrectly. It isn't that they add on to the msrp it's that sometimes they don't offer the discount. "0% or $2000 back" etc. Obviously your route is the best of all worlds.
A negative 5% interest rate is when you lend $100.00 to a relative and after a year say " okay just give me the $95.00 that you have in your wallet right now and we'll call it even ".
back in 2002 went to a chevy dealer to buy a new silverado p u truck went in in old clothes walked the lot for about 15 min (already knew the truck i wanted) went inside found a salesman negotiated the price then the salesman asked if i wanted 5000 dollars off or 0 percent interest i said i wanted the 5000 off so we got the final price he thought he was going to get a high interest rate he asked how much i was going to put down i said i was going to give him a check for the full amount ( i was saving for about 4 years to get a new truck ) no intrest and 5000 off
Back in the 80's, car dealers were desperate to sell cars and given interest rates were still over 10%, they would create all sorts of crazy finance schemes to sell cars. This was also when the rule of 78's and add on interest was still legal in California. I was in college and our Finance professor, who was a brilliant man and CFO of a major bank told us how he went to buy a car over the weekend. He went in looking like your typical sucker. Until the dealer started throwing numbers at him. He whips out his old HP 12 C financial calculator and started running the numbers down the penny. Then he started giving advice to others buying cars that day. He said the dealership was willing to give him a car to make him leave. Then he paid cash for it. We are all busting up in class and he says "See the fun you can have with a pH.D in finance kids."
Negative interest rates exist for bank deposit accounts in several European countries already. You give them £100 at the start of the year, and you get back £99 at the end. Even the Bank of England have told UK banks to prepared for them in the UK.
If I'm shopping for a car, my answer to questions about how I'll pay or whether I have a trade-in is always, "I haven't decided. For now, I just need to know how much it's going to cost me." In one case I got a price I liked, and the salesman says "So, are you going to finance this." And I said, "No, I'll pay cash unless you've got one of those 0.0% deals." And he says, "Maybe; let me see." And he's gone for a few minutes. He comes back and says, "Your credit score is amazing, We can give you a 0% plan." At this point, I know the exact price I'm paying, to the penny. So I tell him fine, let's do it. So I bought the car, put the exact amount in a bank account and set up automatic payments every month to pay the loan. At the end of three years, the loan was paid off, the total of all payments was the exact price as agreed, and there was like 1800 bucks left in the account. Nice. So yeah, there's no way you can go wrong with an interest-free loan. Well, maybe there is, but you'd have to try like hell to lose money.
I was a Finance Manager and in the Auto industry for 20 years..... Who ever said 0% is a scam i would love to sell them a vehicle! Ask him if he would sign at 29.99% interest because that is the most i have ever signed someone at.
When I purchased my vehicle they offered me 0% APR or $5,000 cash back so another words they were charging me $5,000 to finance the vehicle how is that 0% lmao
Easiest way to understand this is that on average the value of the US dollar decreases between two and 4% per year. Any interest rate beneath that and you are literally paying less for the vehicle because by the time you pay for it that payment you make is worth less than it was when you made the contract. This works in the inverse when employers give you a one or 2% raise, it does not even keep up with the consumer price index.
It can be a scam if you have a choice between a 0% interest rate or $3000 cash back and a 2.9% interest rate for instance. The question is can you get the same underlying vehicle price at the 0% rate as you could at the higher interest rate.
0% is only a scam if the interest is capitalized after a set period of time if you don't pay off the loan before the 0% period ends. Furniture stores love this one. If you buy a mattress at 0% for the first 6 months, at 181 days they can hit you with that 24.99% worth of interest for the previous 6 months. ALWAYS read any finance contract before you sign it.
Don’t say I’m paying cash for the same reason. Dealerships make as much money from arranging financing then they do from the sale. Check out the video “don’t say I’m paying cash.”
What many financing experts agree upon, a 0.00% percent loan from Mom and Dad is the best deal possible. Usually turns in to forgivable debt to keep them from moving back into Mom and Dad's house. Sort of like extortion.
Not necessarily related to auto loans, but I have seen furniture stores offering 0% financing, but if you don't pay the loan off on time, you get charged interest for the entire amount.
On the explorer the 0% financing makes sense. However on some vehicles (I’m using the Fusion for this example) they give you two options, regular financing with $4250 in rebates or 0% financing with $1500 in rebates. So assuming you’re doing both for 60 months and you get 2.9% financing with the larger rebate, you’re saving money by forgoing the 0% financing. It just depends on the vehicle and what incentives the manufacture is providing at a given moment.
Never tell the salesman you are going to be paying cash. When you do that, they know they have to make all their money in the showroom instead of making money on you in the business office. If they ask, “will you be financing” you answer, “do you have financing?” They of course will say “yes, would you like to finance with us?” You answer, I’ll look at what you have and consider it. So the sales team considers they don’t have to play it so tight on the front end because they have a second chance to make money off you in the finance office.
Sales Personnel are not compensated on finance spread the F&I department does. Steve buys A plan which is a factory subsidized price and non negotiable.
Basically you are BOTH right. The Aussie UA-camr is correct...for Australian conditions and Steve Lehto is correct, for American conditions especially folks buying with an "A-Plan" discount. In New Zealand (and probably Aussie too), Similar examples exist in the Zero percent financing of home appliances (fridges, clothes washer, TVs etc) that are often offered by some businesses to people with poor credit. To a not very financially literate consumer, the offer of zero percent financing on a major home appliance looks sweet indeed. Sometimes the interest free period is just for the first 1 or 2 years of a many years contract. However those businesses have already artificially increased the price of the appliance to much more than normal retail. They then add in a bunch of "fees and charges' which aren't actually interest per se. Common are an "account establishment fee", followed by a "monthly account maintenance fee" plus huge fees if people make their monthly payments late. I think it can be summed up, by just being aware, and if you're being offered a sweet deal on the interest rate, ensure that the business, whatever you're buying, hasn't just loaded you up with extra fees at the other end (think pinstriping, rustproofing, fabric protection, gap insurance etc). cheers
We came across something similar when we bought our new VW Golf last year. The terms of the 0% financing promotion specifically excluded cars with prices a certain amount below MSRP. The car we wanted had a “special price” on it that disqualified it from 0% financing. The finance guy told us we could either pay $24,000 for it and finance at 1%, or pay $26,000 at 0%. The 1% financing was actually cheaper.
One unstated reality is that you *never* tell the dealer you're paying cash. That's a common misconception. Negotiate the price *first* before discussing ANY financing. If you tell a dealer you're paying cash, they'll factor in the fact they won't make anything on the backend through financing, and that'll raise the floor on their eventual take price. Bottom line: Negotiate the "out-the-door" price *first*, without regard to financing.
Always, Always, negotiate the total price, not a monthly price, even if you are financing. I always tell the salesman I'm financing, but won't negotiate monthly payments "because I have a really high credit score and total cost out the door is the number I've been quoted by other Ford (Chevy, Toyota, Maserati, etc...) dealers". After I'm good with the price, I'll ask for 0% financing. If they have it, I'll take it. If they don't, I'll tell them I'm paying cash. If they balk and then say the total price they gave me is based upon financing and won't honor it, I tell them I'm walking because they are "not honorable" (happened once, didn't need to even get up before they changed their minds about honoring it for a cash deal).
Looked as if he needed a white board wheel that rotates in the center . I’m thinking he was making a point that was directed at someone and we all had to endure the lecture !
Last time I purchased a new American car, they offered me 0.0% financing OR a a few thousand off deal. But not both. I think it depends on the offer. Some are scummier than others.
Yea, that guy did not know what he was talking about Steve. There are two main reasons for 0.0% financing . 1) Clear out excess inventory without discounting the cars, but by discounting the finance. 2) The major reason, to get people onto the lot as they know most will not qualify for the 0.0% financing, but of course will not tell you that until you have fallen "In Love" with a car.
Pretty much yeah. That's the problem the guy couldn't explain the issue on why it is a scam (and rememeber he is accusing Steve of being an idiot for falling for a scam) and pointed out to a video from Australia. The Australia video is probably right but definitely not relevant for a deal in Michigan. Knowing Steve he will probably lay out all the details of his deal in a debate (that's his frickin job afterall) at which point unless you don't believe what he says, you can be fairly certain it's not a scam.
Just to be clear here. Often Manufacturers will include rebates available for purchasing vehicles or 0% you usually can't get both. From that point it's just a matter of figuring out if you save more money with 0% interest or a 1500 dollar rebate or whatever the specific numbers are for your region/credit or situation. It's not a scam.
Exactly! If cash price is cheaper after accepting the rebate than the 0% financing cost total, means you paid upfront financing. If there is no rebate and the cars cost is the same as 0 financing it means they're inflating the price to cover any lending charges. It Could be a good deal if other Dealers aren't selling the same cars cheaper.
@@kenautry5684 They aren't inflating the price to cover any lending charges. It's way simpler than that. There's usually rebates on new vehicles. These rebates are money from the manufacturer. Let's say Ford is manufacturing the vehicle in question. Ford says,"Hey for anyone who buys a F-150 this month we'll either give them 0% financing or standard financing and we'll give them a $500 coupon" The ammount of money the dealership makes is the same.
By law, the vehicle must have a Munroney sticker that shows the MSRP from the manufacturer, fuel economy etc. The manufacturer's sticker cannot be altered or changed. Additional fees have to be listed separately so you would know they are adding additional fees to the MSRP. It's all in Title 15, Chapter 28, sections 1231-1233. There are federal penalties (fines) associated with removing, altering, or changing the manufacturer's Munroney sticker. So, the guy who thinks the auto dealers can hide fees by changing the MSRP is wrong as it's a federal offense to do that.
OK, here's how it could be considered a "scam". Many times you have a choice of a rebate or 0.0% interest, but not both. An example I saw recently would be for the Toyota Avalon, which had a $3000 rebate or 0.0% financing. If you finance $35,000 at 2.99% for 60 months, your total interest is $2725. If you had taken the rebate and financed at that rate/term then you pocketed $275. If you can do a shorter term or get a better rate, then you'd pocket even more. Of course this will not work for anyone with not so great credit scores.
@@stevelehto Agreed, thus the quotes around "scam". It's nice to get both! My example is very specific and might only apply in likewise specific circumstances.
@@kenhoward127 Thanks for the note. The one thing that many people miss is that the deals are often different and change from time to time. They do that to try and keep things confusing.
The simplest way is to negotiate the lowest cash price (well below MSRP) you can get, get it in writing, then ask for the 0% financing. Watch them run for cover! Pay cash! Steve’s example of “financing markup” is right on.
The only way an auto manufacturer can offer 0.00% is if they own the finance company. Ford, in this case, sells the car and records a sale. Ford Motor Credit receives monthly payments for the term of the loan much like an annuity. Ford Motor Credit can make ancillary revenue from late payments etc. If Ford did not own Ford Motor Credit and used a bank or a credit union they would not be able to offer 0.00% to their customers nor would the bank or credit union agree to 0.00% terms. The reason for this is the bank has to pay interest on its customer's deposits i.e certificate of deposits, money market accounts, and saving. The bank or credit union could also issue debt i.e bonds which would result in the bank paying market interests on the debt issued. The bonds issued by the bank would carry an interest rate based on the 10-year treasury rate in most cases. The debt issued by the bank/credit union could be lent out at higher interest rates. Banks/credit unions make money on the spread between interest paid on deposits, interest paid on debt and money lent out. If the bank/credit union lent at 0.00% they would have an effective negative interest rate. This would cause the bank/credit union to lose money on every loan issued at 0.00%.
Often, financing companies have a target for their protfolio’s overall risk. That is, the risk average for their entire book of business. When that average goes askew, they offer these specials to balance it out This is why they have very stringent credit requirements for them.
Here is another way to look at the heart of the matter: Is it better to purchase a new vehicle when the manufacturer is offering a zero percent loan, or to purchase the same vehicle financing it at the going rate? Since (in this case) Ford Motor is absorbing the discount (and not the dealer) the zero percent financing is the better deal. The dealer does not have to find a way to negate the discount since it is absorbed the manufacturer. It becomes more complicated when you have a choice of a rebate or a low interest rate. If I had enough money to purchase it with cash I would still take the no interest loan. This would allow me to earn interest on the cash.
Bought a 2001 Impala back in the day December 2001, when no one was buying cars due to the 911 attacks. Got a great price, fair trade and 0%. I think these deals work when the car companies are really hurting! BTW my wife still paid off the loan early cause she hates debt so much! 🙄
In the USA, MSRP is set by the manufacture and is printed on the window sticker, and cannot be changed after it is set. Yes, it can change mid year but that's before the windows sticker is printed. but once its printed it is set. I guess in Australia, MSRP is Fluid, LOL.
It all depends. You have to calculate how much interest you will pay over the life of the loan vs. how much discount they would give you at the higher interest rate. Also you have to calculate how much interest you will pay if you decide to sell the car early. If you sell the car after only a few years but your loan is for 5 or more years then you throw away some money. You also have to factor in the fact that most interest is paid early on. That can make a difference if you sell a car early or it gets totaled. My Ford Expedition dealer gave us Zero percent for 72 months instead of an extra $4,000 discount. If we only keep it 3 years then we would have paid at least $4000 in interest. If we keep it longer the zero percent will always be better.
Hey Steve, a couple of points. It sounds like you got a good deal, but a lot of low rate deals do include a structure like what that guy was talking about. it isn't about MSRP, it's about what they would accept in cash versus the financed price they require. By the way, there have been negative interest rate bond/debt deals before, where the borrower was paid to borrow money. A negative interest rate, does not mean that you are incented not to pay, you are obliged to make the contracted payments. Payments are comprised of principle and interest. If the interest rate is 0% then there is no interest. Say you buy a $48,000 car, and finance it over 48 months. At 0% financing, your payments would be $1,000 per month. At a negative interest rate, you payment would be something less than that. Now you might think that this is impossible, but say for example there were falling prices while the economy was in a deflationary spiral. In that scenario, you might allocate resources to where you expect to lose the least purchasing power. For example, you might accept a negative interest rate in one currency as compared to a positive interest rate in another currency depending on your expectations of the future relative values of the two currencies. You might rather lose 2% in negative interest if you expect to be 10% ahead in the future currency exchange. If you google negative interest rates you will find examples . Enjoy the Explorer!
The guy who made that comment also didn’t take in the fact, that there are laws against jacking up MSRP for a sale, so its easy to report… The one big thing in Australia, not sure about the US, is Fee’s so we have a “finance rate” and a “comparison rate” that takes in the the count fee’s. So in some cases, a 0.0% rate might have $50 / month admin fee. where a 1% rate might have a $0/month fee.. so you do need to check more than just the rate, here in Australia anyway.
My understanding of 0% interest is It is 0% until you miss a payment then it becomes say 1.9% from day one. It is an incentive/reward for people with good credit. I would assume any monies "lost" would be considered advertising for the company issuing the credit. The 0% carries a degree of risk for the consumer that is easily met by not missing a payment.
By the way, if you ever go to a job interview at Ford. Never park your Toyota in the guest parking area. They were so mad they made me move it half a mile away which is the closest non guest parking space and walk the entire distance. At that point I already decided i wasnt going to take the job and just did the interview out of professional obligation of having agreed to be there at a certain time. for it. If thats how they treat potential employees, imagine how bad they treat their employees!
In practice, they wouldn't do a negative interest rate if they needed to do better than 0%, they'd issue a rebate or otherwise reduce the price they're charging. In practice though, I'm not sure how often they need to do better than 0% as that's already under the rate of inflation.
Sadly for car dealerships cash is no longer king. Dealerships typically do not do the financing themselves. It’s typically the underwritten by another financial institution who gives the dealership a kickback for each loan. So the dealership holds virtually none of the lending risk (the FI does) and the dealer gets a kickback. the deal changes a bit for 0% as the manufacturer gets involved. But manufacturers often do this at the end of the year to move “old inventory” as kind of their version of a clearance sale. to make room.
Steve, I’m surprised you didn’t mention The Automobile Information Disclosure Act of 1958, commonly known as the Monroney Act or Price Sticker Act. The window sticker is a requirement here in the states and dealers aren’t allowed to jack with it. They can add a supplemental sticker for additional equipment or a “market adjustment”, but the Monroney sticker can’t be messed with.
Steve, you didn't get ripped off, but most people do. It's much easier to explain than you think. Quite often the offer is 0% or $1500 back. If you take the 0% you really paid $1500 in interest, and paying it off early won't get it back. And quite often it can work out to be a simple bait and switch. They advertise that they OFFER 0% but you have to qualify. Personally, I think that if you finance a car you are getting ripped off. (Yes, I got ripped off for years, I know better now.) If you can't afford to pay for it, you can't afford it.
Having spent a bit of time in the car business, I would point out that the Maroney Sticker on the window lists the MSRP in this country, and the dealer can't just change it on a whim. Some dealers add a "Bump Sticker" on certain high demand vehicles, that indicate a higher price. When I was in California, they included items like $1000 pin stripes, Fabric protector etc. to justify the new price. No matter what, once you negotiate the price, then you go to finance, for the opportunity to buy undercoating, extended warrantees and what not, and get your financing. Two separate processes, the sales departments and finance department are considered separate profit centers. So while the video about 0% being a scam may apply in Australia, it has no relevance here. Love your posts Steve!
When I was young, I bought a camera on credit, at a rate referred to as "Same as Cash". It was 0.0% interest, as long as you paid it off in one year. If the camera was not paid off in those 12 months, they would calculate the interest based on the payments you made, back-charging the interest to the day of the loan. This, of course, was laid out completely in the loan terms (the fine print). Of course, the minimum payments as set up in the loan would never get the camera paid off in the "same as cash" time period. As a new, and slightly naive, borrower , I thought the first 12 months were interest free, and they would begin charging starting with the 13th month. I only realized my error when I got a statement showing the back interest I would owe if I didn't pay off the camera in that 12th month, so I did exactly that. I know lots of people probably didn't catch this and ended up paying a lot in back interest (this was in the 80's, and I had no credit).
If you want something gasp-worthy, in 2015 i got into a car from a ford dealership in Nevada with a 26.5% interest rate. Admittedly at that point I had no credit and the other option was walking home.
Sometimes there is a choice of 0% or a rebate so that requires a calculator to see what's best. But hey, you dont usually tell them how you will pay for it until you negotiate the price. Right? I never had to do that. Financing comes later in the process.
Rebate from dealer can off set bank/credit union rate.. so $'s from dealer then hit loan and still have a few more bucks off/lower..we did that a few months back.
Steve, I'm a teacher and therefore consider myself to be a "per se" expert.... on whiteboards. Be careful with red. That's a marker color that often will be difficult to erase. Also, erase it as soon as you are done. The longer something is on there the harder it can be to clean. Best of luck with a long life on your whiteboard! :)
The trick is to go over the hard to remove marks with a fresh marking, I usually use black. This wets the dried on marks, making them a lot easier to remove. The spray expo has also does work well, but I'm too cheap to buy that.
There are many circumstances where 0% interest is good. In the case of my parents buying a Heaven Forbid Camry, their Credit Union offered an extremely low interest rate with no prepayment penalties. This is important because they usually pay off a car within a year. The Heaven Forbid 0% financing did not allow prepayment. In this case the minute amount of interest paid over the first year was more than offset by the peace of mind for my parents. Steve Lehto is perfectly positioned to use the 0% financing, and his friendly demeanor aside, someone would have to get up several days early to even get a tiny piece of scam past the good counselor.
We have had negative interest rates here in Denmark for years now - not all rates and hopefully it will change now due to globally increasing rates, but theoretical it isn't. I am paying the bank interest for tha cash I have in my account there because the bank has to pay the central bank interest on the money it stores there. Brieflely we even had mortgages at negative rates. It all depends on the money policy of the government.
Zero financing is not offered unless you have a pretty good credit rating. It's low-risk for the lender, yet provides an excellent sales tool. Simple. No scam.
I prefer a cash rebate over 0% because I prefer to pay off cars in 2 years or so. Both are incentives and which one is better depends on a number of factors.
I was thinking that same thing. Outside of the employee purchase program there is often a rebate offer in lieu of 0% financing. A lot of people may not qualify for the 0% finance option.
Does the program that offered 0.0% financing offer other options such as a rebate or free gas or some other feature? Each of those, if offered as alternatives, needs to be measured against the others. If the 0.0% is in place of say 5.5%, the difference in costs would be the true value of the zero rate. If that amount is less than the rebate offered, then the zero rate wouldn’t be the best option. Furthermore, if the zero rate comes with heavy penalties for a late or missing payment then it might not be the best option. All of the choices I mentioned only make sense if you negotiated the full price before talking financing or even a trade in.
The profits from car sales are so slim to begin with, it’s why new car dealerships also have a repair facility and body shop facility bundled into 1 place. Dealerships make their money on the repairs of your vehicle. Vehicle sales account for relatively small portion of their profits.
What I have done in the pass, was to tell the dealership to drop that price well below invoice, and I will finance with you. Once I got the first billing statement, I paid the car off in full. Advantage: No interest paid & increased credit score. (may may not have the same results, but it has worked twice for me).
nice strategy. Just have to make sure you are the type of person who will pay it off at the start. Some may start with this intention, then end up paying for something else, and stringing out the payments on the car with a bad rate. I can see this working, try to play it off that you want a long term, medium rate loan cause you are on a relatively small fixed income or something. Basically promise them 1/2 of your welfare or something (annuity?) for 10 years, get a large discount on the principle, then pay it off the first month lol.
If you do that, the dealer will probably hate you. You may or may not care about that. Some people will make 3 or 6 payments of a 72 or 84 month loan, then pay it in full to keep the banks happy with them. As I understand as long as you carry a balance for 1 month, the dealer gets paid by the bank, but if you pay it all off asap, the dealer doesn't.
You need to run the numbers. Whern you get a rebate offer OR 0% financing it is often cheaper overall to take the rebate and a low interest rate from the credit union. You just need to run the numbers on a case by case basis.
Wrong he got A-plan which is kind of a unique thing to Michigan and the midwest because so many people work for the big three or a supplier for the big three. And a 2000 dollar rebate ain't Jack shit compared to 0% financing
A-Plan Ford's A-Plan is intended for Ford employees. This is often considered to be the best possible deal out of Ford's discounted Plan offers. How it's calculated: Invoice - Holdback - Advertising Fee + $275 program fee
Here's another late commenter. I have been subscribed to your channel for several months now and am periodically "backtracking" to earlier episodes to try and catch up. A couple of other areas where dealers "make up" for the alleged discount is through documentation fees. I attempted to purchase a new vehicle using a supplier plan. (next tier above employee pricing) Part of the terms and conditions were that the dealer documentation fee was limited to a maximum of $75.00. The finance manager insisted that was incorrect and attempted to charge approximately $700.00. I went so far as to print the terms and conditions page that referenced the maximum allowable documentation fee. I was informed by the finance manger that he had over 20 years experience and that I was incorrect. Needless to say, they lost a sale. Another area that is prevalent is in dealer add-ons. Allegedly, they add paint sealer, undercoating, perform laser VIN etching, apply "Armor-all" to the interior, install wheel locks, etc. It seems that this is performed as soon as the vehicles are unloaded from the transport. Generally, there is no choice in the matter. It is a consumable that cannot be removed at a later time. in addition, the manufacturers generally recommend against these add-ons. They assert that the vehicles were manufactured to a standard that makes these add-ons redundant and often claim that they may actually be detrimental. There is a similar practice on limited production or specialty vehicles. The MSRP remains the same but the dealer has a supplemental (add-on) sticker. Basically, I describe all of this as ADP (additional dealer profit) and refuse to shop where this type of practice is employed. There are some dealers that offer up-front pricing without all of the "fluff." I also agree that the 0.0% financing may not be the best offer in some circumstances. I purchased a vehicle and received the 0.0% rate. I had a trade-in and also received a discount from the MSRP of the new vehicle. However, I examined alternatives to ensure I was receiving the most "bang for my bucks." The best advise is to educate yourself about all aspects of the process.
Steve, I love your use of the "rotating white board"!!! You hit the nail on the head and drove it in with one blow. Great video!!!! One fine point, in the future you may want to figure out a way to minimize the glare from your lighting. Maybe bounce it off the wall you are facing but it should be painted flat pure white.
I got a Nissan Micra in Australia for 0% finance, actually I paid $1AUD for the financing service for legal service. It was a campaign from Nissan to increase market share in Australia because they were losing to Kia and Hyndai. ie the more cars you see on the road, the more confidence you've made the right choice... mental idea. I paid off the car in 3 years. As part of the disclosure, I asked the car dealer how this was possible. There was a joint program where Nissan/Renault would reduce their margins and for some vehicles make a loss, that set amount was prepared and written off as part of a sales target. The financing was supported by Nissan bank in Japan which has a negative interest rate at the time, so they took advantage of the low/negative rates from their central bank. The program was only for a set number of cars nationally. That way their loss from their sales program was mitigated. So yes, 0% finance can be fine, as long as it's done properly.
Scam might be a strong word but I think it's fair to say that 0.0% financing is purely a marketing tactic. As you said the same company owns the bank and the manufacturer so they are free to move profit from one division to another. A savvy buyer should ignore the allure of a below inflation interest rate (essentially a negative interest rate) and compare all cars they are considering on total cost of the loan. A good parallel is in trade in values, a dealership might inflate your trade in by $1000 to make you feel like you're getting a good deal even though they had $2000 of wiggle room on the purchase price. The purchase price, trade in, and interest rate are all separate transactions that a dealership can play with to make you feel like you've gotten a good deal when you may not have. As you said your case is a little different because you wanted only a new explorer and are buying with a known fixed price so the only place to negotiate is interest rate. Edit: buyer
First, if someone can't explain and justify their own opinion because they don't understand it well enough; then I wouldn't waste any more time with them. Second point I would like to make, and I understand and agree with your explanation is that MSRP does not change. It is what it is, set by the manufacturer. They can add additional costs to the price, but it doesn't change what the original MSRP was.
Buying a brand new car is the real smoke and mirrors. If the average car buyer bought a 4 year old car over a new one when they trade-in, and put the difference in a conservative mutual fund after 25 years of it you'd have in the region of $350k. Reallocating your money to an appreciating asset + compound interest is the magic. That new car smell is what will keep you poor.
Well explained. We researched for months, looking at prices over a few models. Purchased a new 2020 Durango last Nov. We got 4 grand off and 0% financing from Dodge. We are happy.
The average person can't get the 'A' plan so it's a little different for us. The dealer will give you a better price at a higher interest rate because they get a discount, i.e. a kickback on the financing. So, you can get a better deal on the car with a higher discount if you finance with them at a higher interest rate. Then, if you can,; buy the car with their discount and pay the loan off as soon as you can with cash or a refinance and you will get the best deal. Also, the cheaper the price, the less sales tax you pay. And if you live in a state that charges for your licenses plates according to the value of the car, then you will pay less for the tags also. BTW, love the white board. You need to use it more. Just don't spin it too fast or you will make us dizzy. LOL
Just buying on A-plan negated everything about the argument of being ripped off. Anyone can get A-plan, you just have to buy 100 shares of (Ford) stock (which is super cheap right now!)
The MSRPs dont really change, otherwise, the dealer would have to replace the window stickers every month based on the promotion. What changes constantly is the invoice numbers based on dealer rebates, etc. The public does not see this. You work a deal off the MSRP. 0% is generally reserved for those with excellent credit, so most wont qualify for it. 0% is also offered generally by the automakers finance arm. They are willing to take a hit on finance if it means a higher volume of sales. Theyll make it up on other customers. The legnth of the loan, at 0%, also often drives customers to buy more expensive vehicles because the loan isnt costing them any more a month, so they finance a more expensive vehicle for a longer term, meaning more profit overall for the automaker. When i bought my last car, i got a great deal off the sticker, the rebates, and 0% from the automakers finance arm. Wasnt a scam at all.
the only time you can have a negative interest rate less than zero, is when you buy something same as cash, which is the same as 0.0% and then you have inflation kick in so that you pay the debt back with money that is worth less. It happens all the time to people who have money in the bank, who's lose money to the bank if their interest rate is lower than the rate of inflation.
It'd be effective interest rate though, not "technically" the actual interest rate. You're right in the explanation though, you're loosing 2ish% due to inflation if you're only getting 1% interest on the account. I haven't seen anything actually rated at less than 0% interest, as in the little boxes on top with the breakdown.
1) A negative interest rate makes since in a period of extended deflation ($100 a year from now will buy more goods that $100 now), but nobody expects deflationary periods to last. 2) What matters is the final total cost of the purchase and financing, discounting inflation, vs opportunity cost of your having more money to spend or invest now. Since Trump is likely to cause heeuuge inflationary bump with his tariffs, a loan now is valuable.
I bought my last car with 0% financing. I could either get $5000 off sticker with 2.9% or $4250 off with 0%, as the promotion was either 2.9% or a $750 factory incentive in addition to the discount I negotiated. Over the term of the loan the 2.9% would cost me ~$2250 in interest, so I paid an extra $750 to save $1500 over the term of the loan. I fail to see how that is a scam.
The "scam" on the low-interest rates, lies in the fine print. If you miss a payment or take longer than the loan term to pay it off, then you will get hit for all the (secret) interest for the full term of the loan.
I'm not sure why people keep making this comment. That is not how finance contracts work with automobiles in the US. Maybe in Australia? Here in the US, if you miss or are late with a payment they hit you with a late fee. But there is no other penalty. And "secret" interest would obviously violate the Truth in Lending Act.
Why would you miss a payment. People who have such good credit that qualify for 0.0% don’t miss payments.
If they did for some freak reason they would just refinance the loan right away.
This usually applies to promo 0% fina. on credit card purchases. Dont pay it off by the promo end date and they hit you with all the deferred interest. Doesnt usually apply to auto loans
@@erikowren7894 and now with auto pay, it is almost impossible to miss a payment.
One more. Teaching my son a lesson about scams when he was 5 years old. Told him I would bet him $5 that I could jump higher then a house. He was excited about getting the $5. He thought no way. So we put our jackets on and go outside and I jump about a foot high. I said see I told you so. He said you didn't jump higher then the house. Yes I did,. Did you see the house jump? He was pretty mad at me, but he never forgot it.
A great one, I’m going to use this myself. 🙂
My dad joke/listening skill: showing my son 2 fingers, ask him "how many fingers do I have?" He said 2. I told him the right answer is 10.
Please dont teach him your version of then/than. lol
That turning white board represents revolving credit.
He really put a spin on it.
One cleverest comment made. 👍🏼🤣
@@treeclimbing7798 Steve gets high percentages of clever comments.
And that's how a loan becomes, "Upside down."
COTD winner. Steve should send you an autographed copy of his book. ;-)
If you got the Explorer on the A plan and 0% financing, I think you’ve had your cake and ate it too.
"I can't take 6 apples from you if you only have 5." - Shh...don't tell the IRS that!!
Let me take a stab at the “negative” interest rate. I bought a car, qualified for 0.0%. As I was signing my wife called, told me to put as much as I could on my Discover card. Discover had a program that month where we got a bit more of cash back. I put 10K on the card, financed the rest. Paid off the card before the interest free time was up and made cash back on it.
I suppose the other possible use for a negative interest rate could be if the terms of the credit required you to have them service the vehicle at regular prices. It could also mean that as a company I could spread out the income and profits from a sale over a number of years and have a guaranteed income over that time and not pay a large tax bill on the profits in year one. But inflation could probably screw this up if it is much above zero during the credit term.
Either way, if buying anything with multiple offers of interest and various finance sources is to just run the numbers with a clear head before signing on the line. In the UK you have a 14 day cooling off period on any finance deal to get out of it without penalty too.
The 0% financing is a dealer's lure, not a scam on the level of auto sales, but it is an opportunity to entice you into a price with less or even no discount. HOWEVER, 0% interest rates is completely a scam that is raping and pillaging the broad population at large. While we are all immersed in this awful cesspool of governmental finance and monetary "policy", it would be a huge waste to fail to take advantage of the 0% financing and instead pay cash for something with a price that is completely INFLATED precisely BECAUSE of the 0% rates.
If you have cash to buy a car outright, the average (non-A-Plan and non-0% qualifier) buyer shouldn't tell the dealer this because it does substantially reduce your negotiation position. A lot of money is made from the loans, so dealers are willing to negotiate pricing and other things when they think they'll make more back in the long run on the loan. What to do instead (again, if 0% financing isn't available to you) is to negotiate the price and perks, with reasonable loan terms (including making sure you don't have an early payment penalty). Make your required down payment and drive your car off the lot. Pay off the car loan at the first payment. You will have nothing (or almost nothing for loans with daily accrual) in interest, and your best possible price.
The best deal is to wait 2 or 3 years and let someone else take the huge initial depreciation, then buy the barely used car with cash.
9 months ... 4000mile on average and 20% or more off
That’s great if you feel like buying a car with 10-20k miles on it and your planning on selling your used car within a few years, otherwise there’s really no point in worrying about depreciation unless it’s for a self-employed tax purposes.
@@michaelesq.atpcfii.9862 car maybe not. Truck absolutely. They hold their value really well anymore, but new they are HELLA expensive. Give it 2-3 years it'll drop 10 grand, drive it 10 more it'll drop another 10, bought the diesel for 30k sold it for 20k 😂
Unless it's an electric truck, in which case your battery is shot in 8 years, RIP your range.
I've seen payday loan places charge way more than 24.99%. They can and do charge upward of 300% interest. It's ok if you can pay it off in less than 30 days but if you go over that they are very hard to pay back.
Dingdingding. Lol.
Sit down and run the numbers. Mileage will vary. Sometimes it's better with interest free loan sometimes it's better with rebates. But you HAVE to run the numbers yourself.
Wouldn't it be better to take the zero interest AND the rebate? That's what I did. Why would you turn down either one when you can have both?
@@stevelehto A lot of the time here in Canada, you cave 0% OR rebates but not both, or not as many. So you do have to do some calculating.
@@stevelehto Your example is a little different due to the A plan. For the general public that don't have that option, many times the offer will be 0% interest OR x amount off. Which in that case, you need to calculate the cheapest route.
The guy who was arguing with you said it incorrectly. It isn't that they add on to the msrp it's that sometimes they don't offer the discount. "0% or $2000 back" etc.
Obviously your route is the best of all worlds.
A negative 5% interest rate is when you lend $100.00 to a relative and after a year say " okay just give me the $95.00 that you have in your wallet right now and we'll call it even ".
back in 2002 went to a chevy dealer to buy a new silverado p u truck went in in old clothes walked the lot for about 15 min (already knew the truck i wanted) went inside found a salesman negotiated the price then the salesman asked if i wanted 5000 dollars off or 0 percent interest i said i wanted the 5000 off so we got the final price he thought he was going to get a high interest rate he asked how much i was going to put down i said i was going to give him a check for the full amount ( i was saving for about 4 years to get a new truck ) no intrest and 5000 off
Back in the 80's, car dealers were desperate to sell cars and given interest rates were still over 10%, they would create all sorts of crazy finance schemes to sell cars. This was also when the rule of 78's and add on interest was still legal in California. I was in college and our Finance professor, who was a brilliant man and CFO of a major bank told us how he went to buy a car over the weekend. He went in looking like your typical sucker. Until the dealer started throwing numbers at him. He whips out his old HP 12 C financial calculator and started running the numbers down the penny. Then he started giving advice to others buying cars that day. He said the dealership was willing to give him a car to make him leave. Then he paid cash for it. We are all busting up in class and he says "See the fun you can have with a pH.D in finance kids."
Negative interest rates exist for bank deposit accounts in several European countries already. You give them £100 at the start of the year, and you get back £99 at the end. Even the Bank of England have told UK banks to prepared for them in the UK.
If I'm shopping for a car, my answer to questions about how I'll pay or whether I have a trade-in is always, "I haven't decided. For now, I just need to know how much it's going to cost me." In one case I got a price I liked, and the salesman says "So, are you going to finance this."
And I said, "No, I'll pay cash unless you've got one of those 0.0% deals."
And he says, "Maybe; let me see." And he's gone for a few minutes. He comes back and says, "Your credit score is amazing, We can give you a 0% plan."
At this point, I know the exact price I'm paying, to the penny. So I tell him fine, let's do it. So I bought the car, put the exact amount in a bank account and set up automatic payments every month to pay the loan. At the end of three years, the loan was paid off, the total of all payments was the exact price as agreed, and there was like 1800 bucks left in the account. Nice.
So yeah, there's no way you can go wrong with an interest-free loan. Well, maybe there is, but you'd have to try like hell to lose money.
I was a Finance Manager and in the Auto industry for 20 years..... Who ever said 0% is a scam i would love to sell them a vehicle! Ask him if he would sign at 29.99% interest because that is the most i have ever signed someone at.
When I purchased my vehicle they offered me 0% APR or $5,000 cash back so another words they were charging me $5,000 to finance the vehicle how is that 0% lmao
If someone in Australia owes more than his car is worth is he “right side up” ?
No, he is underwater.
(typing this from Australia)
Thank you
Easiest way to understand this is that on average the value of the US dollar decreases between two and 4% per year. Any interest rate beneath that and you are literally paying less for the vehicle because by the time you pay for it that payment you make is worth less than it was when you made the contract. This works in the inverse when employers give you a one or 2% raise, it does not even keep up with the consumer price index.
Yes!
It can be a scam if you have a choice between a 0% interest rate or $3000 cash back and a 2.9% interest rate for instance. The question is can you get the same underlying vehicle price at the 0% rate as you could at the higher interest rate.
0% is only a scam if the interest is capitalized after a set period of time if you don't pay off the loan before the 0% period ends. Furniture stores love this one.
If you buy a mattress at 0% for the first 6 months, at 181 days they can hit you with that 24.99% worth of interest for the previous 6 months. ALWAYS read any finance contract before you sign it.
I can't believe you made a video about this. But people, especially on youtube, are stupid and believe so many things that just aren't so.
Don’t say I’m paying cash for the same reason. Dealerships make as much money from arranging financing then they do from the sale. Check out the video “don’t say I’m paying cash.”
What many financing experts agree upon, a 0.00% percent loan from Mom and Dad is the best deal possible. Usually turns in to forgivable debt to keep them from moving back into Mom and Dad's house. Sort of like extortion.
Not necessarily related to auto loans, but I have seen furniture stores offering 0% financing, but if you don't pay the loan off on time, you get charged interest for the entire amount.
On the explorer the 0% financing makes sense. However on some vehicles (I’m using the Fusion for this example) they give you two options, regular financing with $4250 in rebates or 0% financing with $1500 in rebates. So assuming you’re doing both for 60 months and you get 2.9% financing with the larger rebate, you’re saving money by forgoing the 0% financing. It just depends on the vehicle and what incentives the manufacture is providing at a given moment.
Never tell the salesman you are going to be paying cash. When you do that, they know they have to make all their money in the showroom instead of making money on you in the business office. If they ask, “will you be financing” you answer, “do you have financing?” They of course will say “yes, would you like to finance with us?” You answer, I’ll look at what you have and consider it. So the sales team considers they don’t have to play it so tight on the front end because they have a second chance to make money off you in the finance office.
Sales Personnel are not compensated on finance spread the F&I department does.
Steve buys A plan which is a factory subsidized price and non negotiable.
Yep! Everyone thinks that dealers want cash sales. They haven’t for years because financing is so profitable.
Basically you are BOTH right. The Aussie UA-camr is correct...for Australian conditions and Steve Lehto is correct, for American conditions especially folks buying with an "A-Plan" discount. In New Zealand (and probably Aussie too), Similar examples exist in the Zero percent financing of home appliances (fridges, clothes washer, TVs etc) that are often offered by some businesses to people with poor credit. To a not very financially literate consumer, the offer of zero percent financing on a major home appliance looks sweet indeed. Sometimes the interest free period is just for the first 1 or 2 years of a many years contract. However those businesses have already artificially increased the price of the appliance to much more than normal retail. They then add in a bunch of "fees and charges' which aren't actually interest per se. Common are an "account establishment fee", followed by a "monthly account maintenance fee" plus huge fees if people make their monthly payments late. I think it can be summed up, by just being aware, and if you're being offered a sweet deal on the interest rate, ensure that the business, whatever you're buying, hasn't just loaded you up with extra fees at the other end (think pinstriping, rustproofing, fabric protection, gap insurance etc). cheers
My point was that the "scam" does not apply to me. I was addressing the guy who said that it did (and it was not the guy in the video).
We came across something similar when we bought our new VW Golf last year. The terms of the 0% financing promotion specifically excluded cars with prices a certain amount below MSRP. The car we wanted had a “special price” on it that disqualified it from 0% financing. The finance guy told us we could either pay $24,000 for it and finance at 1%, or pay $26,000 at 0%. The 1% financing was actually cheaper.
Very well taught and explained Professor Lehto. I opt for 0% with the dealer deductions and discounts any day.
One unstated reality is that you *never* tell the dealer you're paying cash. That's a common misconception. Negotiate the price *first* before discussing ANY financing. If you tell a dealer you're paying cash, they'll factor in the fact they won't make anything on the backend through financing, and that'll raise the floor on their eventual take price. Bottom line: Negotiate the "out-the-door" price *first*, without regard to financing.
Always, Always, negotiate the total price, not a monthly price, even if you are financing. I always tell the salesman I'm financing, but won't negotiate monthly payments "because I have a really high credit score and total cost out the door is the number I've been quoted by other Ford (Chevy, Toyota, Maserati, etc...) dealers". After I'm good with the price, I'll ask for 0% financing. If they have it, I'll take it. If they don't, I'll tell them I'm paying cash. If they balk and then say the total price they gave me is based upon financing and won't honor it, I tell them I'm walking because they are "not honorable" (happened once, didn't need to even get up before they changed their minds about honoring it for a cash deal).
If someone can’t succinctly explain why something is a scam that they claim is a scam, they don’t really understand the argument they are making.
I clicked LIKE before Steve even started speaking. He's got a whiteboard - that automatically qualifies for a LIKE. I mean come on - it's Steve!
Looked as if he needed a white board wheel that rotates in the center . I’m thinking he was making a point that was directed at someone and we all had to endure the lecture !
Last time I purchased a new American car, they offered me 0.0% financing OR a a few thousand off deal. But not both. I think it depends on the offer. Some are scummier than others.
Yea, that guy did not know what he was talking about Steve. There are two main reasons for 0.0% financing . 1) Clear out excess inventory without discounting the cars, but by discounting the finance. 2) The major reason, to get people onto the lot as they know most will not qualify for the 0.0% financing, but of course will not tell you that until you have fallen "In Love" with a car.
I negotiated the price of the car before even doing a credit app. I got 0%. I don’t feel scammed.
0.0% financing is free money. There is no scam unless you are paying more for the vehicle when financing versus if you paid in full.
Pretty much yeah. That's the problem the guy couldn't explain the issue on why it is a scam (and rememeber he is accusing Steve of being an idiot for falling for a scam) and pointed out to a video from Australia. The Australia video is probably right but definitely not relevant for a deal in Michigan.
Knowing Steve he will probably lay out all the details of his deal in a debate (that's his frickin job afterall) at which point unless you don't believe what he says, you can be fairly certain it's not a scam.
Just to be clear here. Often Manufacturers will include rebates available for purchasing vehicles or 0% you usually can't get both. From that point it's just a matter of figuring out if you save more money with 0% interest or a 1500 dollar rebate or whatever the specific numbers are for your region/credit or situation. It's not a scam.
Exactly! If cash price is cheaper after accepting the rebate than the 0% financing cost total, means you paid upfront financing. If there is no rebate and the cars cost is the same as 0 financing it means they're inflating the price to cover any lending charges. It Could be a good deal if other Dealers aren't selling the same cars cheaper.
@@kenautry5684 They aren't inflating the price to cover any lending charges.
It's way simpler than that. There's usually rebates on new vehicles. These rebates are money from the manufacturer. Let's say Ford is manufacturing the vehicle in question. Ford says,"Hey for anyone who buys a F-150 this month we'll either give them 0% financing or standard financing and we'll give them a $500 coupon" The ammount of money the dealership makes is the same.
If price is same at 4.0% interest and at 0.0% interest how can it be a scam?
By law, the vehicle must have a Munroney sticker that shows the MSRP from the manufacturer, fuel economy etc. The manufacturer's sticker cannot be altered or changed. Additional fees have to be listed separately so you would know they are adding additional fees to the MSRP. It's all in Title 15, Chapter 28, sections 1231-1233. There are federal penalties (fines) associated with removing, altering, or changing the manufacturer's Munroney sticker. So, the guy who thinks the auto dealers can hide fees by changing the MSRP is wrong as it's a federal offense to do that.
I think the Australian guy may be the only person who needed that particular video. Thanks anyhow. Your stuff is great!
OK, here's how it could be considered a "scam". Many times you have a choice of a rebate or 0.0% interest, but not both. An example I saw recently would be for the Toyota Avalon, which had a $3000 rebate or 0.0% financing. If you finance $35,000 at 2.99% for 60 months, your total interest is $2725. If you had taken the rebate and financed at that rate/term then you pocketed $275. If you can do a shorter term or get a better rate, then you'd pocket even more. Of course this will not work for anyone with not so great credit scores.
I got a rebate. So whether it "could be" a scam is quite different from it being an "actual" scam.
@@stevelehto Agreed, thus the quotes around "scam". It's nice to get both! My example is very specific and might only apply in likewise specific circumstances.
@@kenhoward127 Thanks for the note. The one thing that many people miss is that the deals are often different and change from time to time. They do that to try and keep things confusing.
@@stevelehto Exactly!
The only problem is the A Plan is only good if you want a Ford car?
The simplest way is to negotiate the lowest cash price (well below MSRP) you can get, get it in writing, then ask for the 0% financing. Watch them run for cover! Pay cash! Steve’s example of “financing markup” is right on.
The only way an auto manufacturer can offer 0.00% is if they own the finance company. Ford, in this case, sells the car and records a sale. Ford Motor Credit receives monthly payments for the term of the loan much like an annuity. Ford Motor Credit can make ancillary revenue from late payments etc. If Ford did not own Ford Motor Credit and used a bank or a credit union they would not be able to offer 0.00% to their customers nor would the bank or credit union agree to 0.00% terms. The reason for this is the bank has to pay interest on its customer's deposits i.e certificate of deposits, money market accounts, and saving. The bank or credit union could also issue debt i.e bonds which would result in the bank paying market interests on the debt issued. The bonds issued by the bank would carry an interest rate based on the 10-year treasury rate in most cases. The debt issued by the bank/credit union could be lent out at higher interest rates. Banks/credit unions make money on the spread between interest paid on deposits, interest paid on debt and money lent out. If the bank/credit union lent at 0.00% they would have an effective negative interest rate. This would cause the bank/credit union to lose money on every loan issued at 0.00%.
And, Ford could simply cut a check to FMCC and pay them for each loan they make like this.
first negotiate the price and then discuss how to pay for the vehicle
Often, financing companies have a target for their protfolio’s overall risk. That is, the risk average for their entire book of business. When that average goes askew, they offer these specials to balance it out
This is why they have very stringent credit requirements for them.
Here is another way to look at the heart of the matter: Is it better to purchase a new vehicle when the manufacturer is offering a zero percent loan, or to purchase the same vehicle financing it at the going rate? Since (in this case) Ford Motor is absorbing the discount (and not the dealer) the zero percent financing is the better deal. The dealer does not have to find a way to negate the discount since it is absorbed the manufacturer. It becomes more complicated when you have a choice of a rebate or a low interest rate.
If I had enough money to purchase it with cash I would still take the no interest loan. This would allow me to earn interest on the cash.
Hundo behind the rear wheel of the Tucker on the right side of the top of the cabinet. 255.
I love how you explain this like you're teaching a 2nd grade math class, lol.
Bought a 2001 Impala back in the day December 2001, when no one was buying cars due to the 911 attacks. Got a great price, fair trade and 0%. I think these deals work when the car companies are really hurting! BTW my wife still paid off the loan early cause she hates debt so much! 🙄
In the USA, MSRP is set by the manufacture and is printed on the window sticker, and cannot be changed after it is set. Yes, it can change mid year but that's before the windows sticker is printed. but once its printed it is set. I guess in Australia, MSRP is Fluid, LOL.
It all depends. You have to calculate how much interest you will pay over the life of the loan vs. how much discount they would give you at the higher interest rate.
Also you have to calculate how much interest you will pay if you decide to sell the car early. If you sell the car after only a few years but your loan is for 5 or more years then you throw away some money.
You also have to factor in the fact that most interest is paid early on. That can make a difference if you sell a car early or it gets totaled.
My Ford Expedition dealer gave us Zero percent for 72 months instead of an extra $4,000 discount. If we only keep it 3 years then we would have paid at least $4000 in interest. If we keep it longer the zero percent will always be better.
Hey Steve, a couple of points. It sounds like you got a good deal, but a lot of low rate deals do include a structure like what that guy was talking about. it isn't about MSRP, it's about what they would accept in cash versus the financed price they require. By the way, there have been negative interest rate bond/debt deals before, where the borrower was paid to borrow money. A negative interest rate, does not mean that you are incented not to pay, you are obliged to make the contracted payments. Payments are comprised of principle and interest. If the interest rate is 0% then there is no interest. Say you buy a $48,000 car, and finance it over 48 months. At 0% financing, your payments would be $1,000 per month. At a negative interest rate, you payment would be something less than that.
Now you might think that this is impossible, but say for example there were falling prices while the economy was in a deflationary spiral. In that scenario, you might allocate resources to where you expect to lose the least purchasing power. For example, you might accept a negative interest rate in one currency as compared to a positive interest rate in another currency depending on your expectations of the future relative values of the two currencies. You might rather lose 2% in negative interest if you expect to be 10% ahead in the future currency exchange. If you google negative interest rates you will find examples .
Enjoy the Explorer!
The guy who made that comment also didn’t take in the fact, that there are laws against jacking up MSRP for a sale, so its easy to report… The one big thing in Australia, not sure about the US, is Fee’s so we have a “finance rate” and a “comparison rate” that takes in the the count fee’s. So in some cases, a 0.0% rate might have $50 / month admin fee. where a 1% rate might have a $0/month fee.. so you do need to check more than just the rate, here in Australia anyway.
My understanding of 0% interest is It is 0% until you miss a payment then it becomes say 1.9% from day one. It is an incentive/reward for people with good credit. I would assume any monies "lost" would be considered advertising for the company issuing the credit. The 0% carries a degree of risk for the consumer that is easily met by not missing a payment.
Not in my case. Sorry, but that's not how it works with my contract. If I pay late, there is a late fee. But the interest rate DOES NOT CHANGE.
@@stevelehto
Great! The lending market probably has evolved to be more friendly to the borrower.
By the way, if you ever go to a job interview at Ford. Never park your Toyota in the guest parking area. They were so mad they made me move it half a mile away which is the closest non guest parking space and walk the entire distance. At that point I already decided i wasnt going to take the job and just did the interview out of professional obligation of having agreed to be there at a certain time. for it. If thats how they treat potential employees, imagine how bad they treat their employees!
In practice, they wouldn't do a negative interest rate if they needed to do better than 0%, they'd issue a rebate or otherwise reduce the price they're charging. In practice though, I'm not sure how often they need to do better than 0% as that's already under the rate of inflation.
@Cellphone Dave Nope, inflation is generated by printing more money at a rate that exceeds the growth of economic activity.
This is pure gold. You learn a lot about how lawyers use communication skills to persuade juries. They spoonfeed them the info very methodically.
Sadly for car dealerships cash is no longer king.
Dealerships typically do not do the financing themselves. It’s typically the underwritten by another financial institution who gives the dealership a kickback for each loan. So the dealership holds virtually none of the lending risk (the FI does) and the dealer gets a kickback.
the deal changes a bit for 0% as the manufacturer gets involved. But manufacturers often do this at the end of the year to move “old inventory” as kind of their version of a clearance sale. to make room.
Nice Tim Russert move, Steve. You're a better man than most. That guy with the room-temperature IQ is still walking around believing he's right.
Steve, I’m surprised you didn’t mention The Automobile Information Disclosure Act of 1958, commonly known as the Monroney Act or Price Sticker Act. The window sticker is a requirement here in the states and dealers aren’t allowed to jack with it. They can add a supplemental sticker for additional equipment or a “market adjustment”, but the Monroney sticker can’t be messed with.
Steve, you didn't get ripped off, but most people do. It's much easier to explain than you think. Quite often the offer is 0% or $1500 back. If you take the 0% you really paid $1500 in interest, and paying it off early won't get it back. And quite often it can work out to be a simple bait and switch. They advertise that they OFFER 0% but you have to qualify. Personally, I think that if you finance a car you are getting ripped off. (Yes, I got ripped off for years, I know better now.) If you can't afford to pay for it, you can't afford it.
Having spent a bit of time in the car business, I would point out that the Maroney Sticker on the window lists the MSRP in this country, and the dealer can't just change it on a whim. Some dealers add a "Bump Sticker" on certain high demand vehicles, that indicate a higher price. When I was in California, they included items like $1000 pin stripes, Fabric protector etc. to justify the new price. No matter what, once you negotiate the price, then you go to finance, for the opportunity to buy undercoating, extended warrantees and what not, and get your financing. Two separate processes, the sales departments and finance department are considered separate profit centers. So while the video about 0% being a scam may apply in Australia, it has no relevance here.
Love your posts Steve!
If you can finance at a rate lower than the rate of inflation, you’re making money.
When I was young, I bought a camera on credit, at a rate referred to as "Same as Cash". It was 0.0% interest, as long as you paid it off in one year. If the camera was not paid off in those 12 months, they would calculate the interest based on the payments you made, back-charging the interest to the day of the loan. This, of course, was laid out completely in the loan terms (the fine print). Of course, the minimum payments as set up in the loan would never get the camera paid off in the "same as cash" time period.
As a new, and slightly naive, borrower , I thought the first 12 months were interest free, and they would begin charging starting with the 13th month. I only realized my error when I got a statement showing the back interest I would owe if I didn't pay off the camera in that 12th month, so I did exactly that. I know lots of people probably didn't catch this and ended up paying a lot in back interest (this was in the 80's, and I had no credit).
If you want something gasp-worthy, in 2015 i got into a car from a ford dealership in Nevada with a 26.5% interest rate. Admittedly at that point I had no credit and the other option was walking home.
Sometimes there is a choice of 0% or a rebate so that requires a calculator to see what's best. But hey, you dont usually tell them how you will pay for it until you negotiate the price. Right? I never had to do that. Financing comes later in the process.
Rebate from dealer can off set bank/credit union rate.. so $'s from dealer then hit loan and still have a few more bucks off/lower..we did that a few months back.
Steve, I'm a teacher and therefore consider myself to be a "per se" expert.... on whiteboards. Be careful with red. That's a marker color that often will be difficult to erase. Also, erase it as soon as you are done. The longer something is on there the harder it can be to clean. Best of luck with a long life on your whiteboard! :)
The trick is to go over the hard to remove marks with a fresh marking, I usually use black. This wets the dried on marks, making them a lot easier to remove. The spray expo has also does work well, but I'm too cheap to buy that.
There are many circumstances where 0% interest is good. In the case of my parents buying a Heaven Forbid Camry, their Credit Union offered an extremely low interest rate with no prepayment penalties. This is important because they usually pay off a car within a year. The Heaven Forbid 0% financing did not allow prepayment. In this case the minute amount of interest paid over the first year was more than offset by the peace of mind for my parents. Steve Lehto is perfectly positioned to use the 0% financing, and his friendly demeanor aside, someone would have to get up several days early to even get a tiny piece of scam past the good counselor.
Yeah. Sometimes it's worth paying for flexibility.
We have had negative interest rates here in Denmark for years now - not all rates and hopefully it will change now due to globally increasing rates, but theoretical it isn't.
I am paying the bank interest for tha cash I have in my account there because the bank has to pay the central bank interest on the money it stores there. Brieflely we even had mortgages at negative rates.
It all depends on the money policy of the government.
Please don't mount the whiteboard, the rotations made this video even better.
Most convoluted video ever! You should get an award!
Zero financing is not offered unless you have a pretty good credit rating. It's low-risk for the lender, yet provides an excellent sales tool. Simple. No scam.
I prefer a cash rebate over 0% because I prefer to pay off cars in 2 years or so. Both are incentives and which one is better depends on a number of factors.
I was thinking that same thing. Outside of the employee purchase program there is often a rebate offer in lieu of 0% financing. A lot of people may not qualify for the 0% finance option.
Does the program that offered 0.0% financing offer other options such as a rebate or free gas or some other feature? Each of those, if offered as alternatives, needs to be measured against the others. If the 0.0% is in place of say 5.5%, the difference in costs would be the true value of the zero rate. If that amount is less than the rebate offered, then the zero rate wouldn’t be the best option. Furthermore, if the zero rate comes with heavy penalties for a late or missing payment then it might not be the best option. All of the choices I mentioned only make sense if you negotiated the full price before talking financing or even a trade in.
The profits from car sales are so slim to begin with, it’s why new car dealerships also have a repair facility and body shop facility bundled into 1 place. Dealerships make their money on the repairs of your vehicle. Vehicle sales account for relatively small portion of their profits.
What I have done in the pass, was to tell the dealership to drop that price well below invoice, and I will finance with you. Once I got the first billing statement, I paid the car off in full. Advantage: No interest paid & increased credit score. (may may not have the same results, but it has worked twice for me).
nice strategy. Just have to make sure you are the type of person who will pay it off at the start. Some may start with this intention, then end up paying for something else, and stringing out the payments on the car with a bad rate.
I can see this working, try to play it off that you want a long term, medium rate loan cause you are on a relatively small fixed income or something. Basically promise them 1/2 of your welfare or something (annuity?) for 10 years, get a large discount on the principle, then pay it off the first month lol.
If you do that, the dealer will probably hate you. You may or may not care about that. Some people will make 3 or 6 payments of a 72 or 84 month loan, then pay it in full to keep the banks happy with them. As I understand as long as you carry a balance for 1 month, the dealer gets paid by the bank, but if you pay it all off asap, the dealer doesn't.
I know here in the UK, there is normally a penalty clause in the finance contract which kicks in if you try to repay the loan early.
You need to run the numbers. Whern you get a rebate offer OR 0% financing it is often cheaper overall to take the rebate and a low interest rate from the credit union.
You just need to run the numbers on a case by case basis.
I bought a new truck 6 years ago and got 0% for 84 months, but it was only available on leftovers at the beginning of the new model year.
A lot of the time to get a zero percent interest rate on a car you have to give up things like a $2,000 rebate or pay a higher price for the car.
Wrong he got A-plan which is kind of a unique thing to Michigan and the midwest because so many people work for the big three or a supplier for the big three. And a 2000 dollar rebate ain't Jack shit compared to 0% financing
Chet, this wasn't the case in Steve's situation.
A-Plan
Ford's A-Plan is intended for Ford employees. This is often considered to be the best possible deal out of Ford's discounted Plan offers.
How it's calculated: Invoice - Holdback - Advertising Fee + $275 program fee
Everybody Gangsta until the white board comes out
Here's another late commenter. I have been subscribed to your channel for several months now and am periodically "backtracking" to earlier episodes to try and catch up. A couple of other areas where dealers "make up" for the alleged discount is through documentation fees. I attempted to purchase a new vehicle using a supplier plan. (next tier above employee pricing) Part of the terms and conditions were that the dealer documentation fee was limited to a maximum of $75.00. The finance manager insisted that was incorrect and attempted to charge approximately $700.00. I went so far as to print the terms and conditions page that referenced the maximum allowable documentation fee. I was informed by the finance manger that he had over 20 years experience and that I was incorrect. Needless to say, they lost a sale.
Another area that is prevalent is in dealer add-ons. Allegedly, they add paint sealer, undercoating, perform laser VIN etching, apply "Armor-all" to the interior, install wheel locks, etc. It seems that this is performed as soon as the vehicles are unloaded from the transport. Generally, there is no choice in the matter. It is a consumable that cannot be removed at a later time. in addition, the manufacturers generally recommend against these add-ons. They assert that the vehicles were manufactured to a standard that makes these add-ons redundant and often claim that they may actually be detrimental.
There is a similar practice on limited production or specialty vehicles. The MSRP remains the same but the dealer has a supplemental (add-on) sticker. Basically, I describe all of this as ADP (additional dealer profit) and refuse to shop where this type of practice is employed. There are some dealers that offer up-front pricing without all of the "fluff." I also agree that the 0.0% financing may not be the best offer in some circumstances. I purchased a vehicle and received the 0.0% rate. I had a trade-in and also received a discount from the MSRP of the new vehicle. However, I examined alternatives to ensure I was receiving the most "bang for my bucks." The best advise is to educate yourself about all aspects of the process.
Steve,
I love your use of the "rotating white board"!!!
You hit the nail on the head and drove it in with one blow.
Great video!!!!
One fine point, in the future you may want to figure out a way to minimize the glare from your lighting. Maybe bounce it off the wall you are facing but it should be painted flat pure white.
I got a Nissan Micra in Australia for 0% finance, actually I paid $1AUD for the financing service for legal service. It was a campaign from Nissan to increase market share in Australia because they were losing to Kia and Hyndai. ie the more cars you see on the road, the more confidence you've made the right choice... mental idea.
I paid off the car in 3 years. As part of the disclosure, I asked the car dealer how this was possible.
There was a joint program where Nissan/Renault would reduce their margins and for some vehicles make a loss, that set amount was prepared and written off as part of a sales target. The financing was supported by Nissan bank in Japan which has a negative interest rate at the time, so they took advantage of the low/negative rates from their central bank.
The program was only for a set number of cars nationally. That way their loss from their sales program was mitigated.
So yes, 0% finance can be fine, as long as it's done properly.
Scam might be a strong word but I think it's fair to say that 0.0% financing is purely a marketing tactic. As you said the same company owns the bank and the manufacturer so they are free to move profit from one division to another. A savvy buyer should ignore the allure of a below inflation interest rate (essentially a negative interest rate) and compare all cars they are considering on total cost of the loan.
A good parallel is in trade in values, a dealership might inflate your trade in by $1000 to make you feel like you're getting a good deal even though they had $2000 of wiggle room on the purchase price. The purchase price, trade in, and interest rate are all separate transactions that a dealership can play with to make you feel like you've gotten a good deal when you may not have.
As you said your case is a little different because you wanted only a new explorer and are buying with a known fixed price so the only place to negotiate is interest rate.
Edit: buyer
First, if someone can't explain and justify their own opinion because they don't understand it well enough; then I wouldn't waste any more time with them. Second point I would like to make, and I understand and agree with your explanation is that MSRP does not change. It is what it is, set by the manufacturer. They can add additional costs to the price, but it doesn't change what the original MSRP was.
Buying a brand new car is the real smoke and mirrors. If the average car buyer bought a 4 year old car over a new one when they trade-in, and put the difference in a conservative mutual fund after 25 years of it you'd have in the region of $350k. Reallocating your money to an appreciating asset + compound interest is the magic. That new car smell is what will keep you poor.
Well explained. We researched for months, looking at prices over a few models. Purchased a new 2020 Durango last Nov. We got 4 grand off and 0% financing from Dodge. We are happy.
The funniest thing about this video, is that you had to explain this to someone.
The average person can't get the 'A' plan so it's a little different for us. The dealer will give you a better price at a higher interest rate because they get a discount, i.e. a kickback on the financing. So, you can get a better deal on the car with a higher discount if you finance with them at a higher interest rate. Then, if you can,; buy the car with their discount and pay the loan off as soon as you can with cash or a refinance and you will get the best deal. Also, the cheaper the price, the less sales tax you pay. And if you live in a state that charges for your licenses plates according to the value of the car, then you will pay less for the tags also. BTW, love the white board. You need to use it more. Just don't spin it too fast or you will make us dizzy. LOL
I know this comment is late, however when Barrister Lehto goes to the "whiteboard" it is a TRUTH alert. Go Mr. Lehto. Great videos
That guy claiming it was a scam got scammed when brains were being handed out. He should get a refund.
Just buying on A-plan negated everything about the argument of being ripped off. Anyone can get A-plan, you just have to buy 100 shares of (Ford) stock (which is super cheap right now!)
The MSRPs dont really change, otherwise, the dealer would have to replace the window stickers every month based on the promotion. What changes constantly is the invoice numbers based on dealer rebates, etc. The public does not see this. You work a deal off the MSRP. 0% is generally reserved for those with excellent credit, so most wont qualify for it. 0% is also offered generally by the automakers finance arm. They are willing to take a hit on finance if it means a higher volume of sales. Theyll make it up on other customers. The legnth of the loan, at 0%, also often drives customers to buy more expensive vehicles because the loan isnt costing them any more a month, so they finance a more expensive vehicle for a longer term, meaning more profit overall for the automaker. When i bought my last car, i got a great deal off the sticker, the rebates, and 0% from the automakers finance arm. Wasnt a scam at all.
How about the fact that the MSRP is printed on the window sticker? It's not like the car has an electronic price sign like they do at Kohl's.
the only time you can have a negative interest rate less than zero, is when you buy something same as cash, which is the same as 0.0% and then you have inflation kick in so that you pay the debt back with money that is worth less. It happens all the time to people who have money in the bank, who's lose money to the bank if their interest rate is lower than the rate of inflation.
It'd be effective interest rate though, not "technically" the actual interest rate. You're right in the explanation though, you're loosing 2ish% due to inflation if you're only getting 1% interest on the account. I haven't seen anything actually rated at less than 0% interest, as in the little boxes on top with the breakdown.
1) A negative interest rate makes since in a period of extended deflation ($100 a year from now will buy more goods that $100 now), but nobody expects deflationary periods to last. 2) What matters is the final total cost of the purchase and financing, discounting inflation, vs opportunity cost of your having more money to spend or invest now. Since Trump is likely to cause heeuuge inflationary bump with his tariffs, a loan now is valuable.
I bought my last car with 0% financing. I could either get $5000 off sticker with 2.9% or $4250 off with 0%, as the promotion was either 2.9% or a $750 factory incentive in addition to the discount I negotiated. Over the term of the loan the 2.9% would cost me ~$2250 in interest, so I paid an extra $750 to save $1500 over the term of the loan. I fail to see how that is a scam.