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0% APR Auto Loan or Rebate - which one is better?


Are you confused by all of the auto offers out there? You're not alone. Deciding between a low-rate dealer loan or a rebate can be difficult. So take a look at these facts before you finance your next new vehicle.

A dealer loan rate of 0% (or whatever today's "special" rate is) sounds attractive, but beware of hidden costs. Most of these loans require larger down payments and offer shorter terms, and some dealers may even require that high cost credit insurance be added to the amount of your loan. That can lead to huge monthly payments. You also may find that these loans are available only on in-stock vehicles and on slow-selling models. If the payment is too high for you, the dealer may try to talk you into a higher rate with longer terms. That's where it gets tricky, because they know you are eager to get into your car, and their goal is to close the sale.

That's where the credit union can help. For example, choosing the rebate may be a better option. A rebate can be applied to your down payment, lowering the amount of your loan. Then, with a low-rate loan from your credit union, you can choose longer terms to fit your budget.

Consider a typical vehicle loan of $20,000. With 0% APR and a 36 month term, your payment will be a whopping $555 per month! Plus the dealer may require credit insurance protection, which will increase your payment even more (most credit insurance plans offered by car dealers add the premium to your loan balance, while Credit Life/Disability insurance offered by the credit union is charged monthly based on your current balance). Or you can take the rebate of say $1,500 and reduce the amount of your loan to $18,500. You then finance your new vehicle at the credit union for 48 months at 5.99%* APR. Your monthly payment will be about $434, a savings of $121 per month! Think of what you could do with an extra $121 every month. You could even invest it and perhaps earn a higher return than the 5.99% APR you are paying the credit union. So even if you can afford the high payment, 0% APR is not necessarily the best option for you.

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*Rate listed is for example purposes only. Actual Rates are subject to change