(FinancialHealth.net) – Automakers are trying hard to drum up business during the COVID-19 pandemic. They’re offering attractive deals to buyers for vehicles that are sitting on car lots across the country. Before you rush out and purchase a new ride, there are some facts you should consider.
According to a recent CNN report, Hyundai and General Motors (GM) are among the car makers offering customers with qualifying credit scores 0% interest on 84-month loans. Other companies are telling potential buyers they won’t have to make their first payment for 120 days.
I see General Motors has already gone to their 2008 playbook of offering 0% interest loans with $0 down. I wonder how long before others follow suit.
— Malcolm Ethridge, CFP® (@MalcolmOnMoney) April 3, 2020
For some people, these deals are great. Buying a car with 0% interest on a 7-year loan means payments will be cheap. However, that won’t work for everyone. If you’re a person who puts a lot of miles on your car, you might not want a loan for that long. By the time you get to the end of it, you could be very close to buying a new vehicle.
Another factor to consider is the value of the vehicle by the end of that loan. Many automobiles lose their value incredibly fast.
According to Carfax, your vehicle will lose about 20% its value in the first 12 months. After that it loses roughly 10% every year. By the time you get to the end of that 7-year lease, it’ll have lost 80% of its value. That significantly impacts the resale and trade-in amounts.
If you don’t travel a lot or you plan to keep your next car for as many decades as it’ll last, go for it. A 0% interest rate is pretty hard to beat. For everyone else, shop around a bit. You might find a loan that’s more suited to your personal financial situation.
~Here’s to Your Financial Health!
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