Post about "finance"

Zero Percent Financing Auto Loans: Are They Worth It?

Several television ads lately have been pushing the concept of zero percent financing for various new vehicles. One offer will allow consumers to finance a new SUV for a 72 month loan, interest free. On the surface, this offer looks tremendously appealing and it could be that way for you if you are the right kind of consumer. Have you considered buying a car with zero percent financing? If so, you need to fully explore just what you are getting with this type of loan or you could end up being trapped in one heck of a mess!

Buying any vehicle that has interest free financing should get your attention. What better way to buy a vehicle then to pay it back over time interest free. However, there are some pitfalls you must be aware of before choosing this type of new vehicle financing and they include:

Few Models Offered – Check the deal out closely and you may learn that only one or two big SUVs qualify for this special financing offer. Naturally, if this is the vehicle you want then keep on reading. If not, you’ll have to pay the market financing rate for your compact car or crossover vehicle.

Your Loan Term Is Too Short — Some interest free deals have loan terms that are too short. A 42 month term means that your monthly payments will be very high while a 72 month term spreads out the costs and lowers your monthly payments.

High Sticker Price, No Negotiation — To receive zero percent financing, the auto dealer may be less willing to dicker with the price. That $35,000 SUV already has an $8000 mark up in manufacturer and dealer profits; additionally, if you buy it at the end of model year its value has already decreased significantly. Ultimately, you may do better by simply taking the rebate along with negotiating a lower price. If you still need financing, you will probably find a decent rate somewhere else.

I Am Upside Down! — There is a financing term that many customers are not aware of that can hurt you later on, especially if you plan on trading in the vehicle at some point before it is paid off. Being “upside down” means that you owe more money on the vehicle than what it is worth. This can happen if you put little to no money down on the vehicle and are financing close to the full amount.

After two years or so, you may think that you are making great progress on paying down that six year long loan. However, you could be in for a rude awakening if you decide to trade your car in as the depreciated value has dropped faster than your pay off amount. Thus, your SUV could be worth $15,600 at trade in, but you still owe $18,100 on your loan. This deficiency of $2500 must come out of your pocket to fully satisfy the loan. At this point you may be able to roll that amount over into a new loan or simply pay it out of your pocket on the spot — either way it will cost you dearly!

Of course, if you are planning to keep your vehicle for more than six years than there is no concern for you as the loan will be paid off and your vehicle will still have some value to it.

So, is there anyone who can benefit from a zero percent loan? Yes, there is and they are the folks who have the money to pay cash for their vehicles. With zero percent financing available these are the types of consumers who recognize an opportunity when it has been set before them and decide to let the financing company fund their deal. Then, instead of plunking down the $28,000 for a new SUV they keep their money in the bank earning 5% or better interest which would result in a balance of more than $36,400 at the end of six years. Looking at it another way you could subtract the $9400 from the price of the vehicle and it would be like they paid $18,600 for their purchase! All they have to do is pay their monthly invoice and the extra money goes in their pockets.

Sure, most consumers cannot afford this option, therefore it is important for you to learn everything there is to know about your auto loan agreement before signing on the dotted line. If you can negotiate the lowest price and get zero percent financing on top of it, than you have a deal that is worth your pursuing.

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What Are Some Risks and Issues Around My Company Setting Up a Customer Finance-Leasing Program?

Many firms benefit significantly from either setting up on their own or partnering with a third part to set up a customer financing program for their products. Key benefits are increased sales, cash flow, customer loyalty, etc.But are there also some risks for the company to be aware of also – Of course there are and let’s look at some of those risks.We would also point out that these risks are in fact the same ones taken on by independent leasing firms also.Foremost from a risk perspective is that fact the customer financing program will be viewed by the customers as the one and same as your company. Therefore customer service and financing ability are in fact now part of your firm’s reputation.Companies may also find that the borrowing costs to set up a program are in fact higher than their normal business operating costs. Naturally the method in which the finance division is set up also affects the debt levels of your company. No business wants to fail because it took on higher debt in an effort to in fact help their customers!On a long term basis company lenders might view your firms foray into customer financing as an additional risk factor, which they might try to compensate on by imposing restrictions such as additional covenants, requests for more equity into the firm, etc. The bottom line is simply that setting up a customer financing scenario may in fact affect your own firm’s ability to borrow.If your firm is larger then analysts and firms looking at your firm might in fact be raising issues and perceptions around which business you are actually in, i.e. your products, or the financing of those products. Business owners and financial managers will always want to ensure that ultimately they are sticking to their core business model and philosophies. If your firm becomes too enamored by financing you possibly run the risk of total business failure. There are numerous cases in financial history where firms collapsed because of the shenanigans of the finance division.We have heard the term in business ‘sticking to our knitting’, which of course simply means that management needs unique skills to run a business, and those skills are different in financing. Owners and managers related to the customer financing division must have strong skills in financial sales, structuring, and credit… Naturally we are also inferring that additional skilled personnel ultimately must be hired.No company every wants to look back in hindsight and say that if failed or stumbled because efforts and funds went into financing, as opposed to r&d, marketing, staff, and product growth. Do not let a customer finance program become an obstacle to your ultimate business successBusiness owners should ensure that there is good communications between the main operating company and the customer financing division – clear goals and philosophies should be set out re the function of such a customer finance program.In summary the benefits of offering financing to your customer are very obvious, and proven true by some of the largest and most successful companies in the world – but all you have to do is to do it right! Ensure your firm is aware of the risks and challenges and monitor your customer financing program on an ongoing basis to ensure you are not straying from your core business model.