Pitfalls of Zero Percent Financing
We’ve all seen the ads on television for a new car or truck with 0% financing. What a deal! Buy on credit with no interest — it’s like using someone else’s money!
Not so fast. Zero-percent financing can cost more than you think. Here’s what you should know about this special financing arrangement before you run off to buy a vehicle.
Zero Percent May Offer Fewer Choices
Just like grocery store specials, zero-percent financing offers can be a lure to get you in the door only to find that the “special” isn’t quite what you wanted. Zero-percent offers usually apply only to certain models or brands. Your choice may also be limited to the stock on hand, which means you might not get the color, style, or options you want.
In many cases, sellers are looking to move “loaded” vehicles. Unwanted options can drive the sticker price up 25% or more, lessening your ability to negotiate a better price on the new vehicle or for your trade-in and costing you more than you really want to spend. Those unwanted extras can add up to more than a reasonable interest rate would have cost over the life of a loan on the vehicle you really wanted.
Do You Even Qualify for “Free Money”?
According to a Consumer Task Force for Automotive Issues survey, fewer than 10% of all applicants meet the strict credit criteria needed to qualify for the zero-percent rate. Those with less-than-perfect credit get bumped up to a higher-rate loan, and some financing can often be more expensive that a loan you get through your bank or credit union. Credit unions usually have the lowest rates and fees because they are not-for-profit cooperatives.
Also, many loans require a shorter payback term, making your monthly payments less manageable. You may even have to make a larger down payment and be subject to bigger prepayment penalties if you don’t have your financing in hand when you walk in the door.
Make Your Best Deal with a Pre-Approved Loan and Smart Negotiating
Want to make the best deal? Take rebates instead of special financing, negotiate a good price, then come to your credit union for financing. You’ll find competitive rates on new and used auto loans, and you can get pre-approved in minutes. Even better, get pre-approved before you start shopping so you know exactly how much you can spend and you can make the deal the minute you feel you’ve negotiated a deal you like. Being ready to buy gives you more power in any negotiation.
This chart illustrates your potential savings when you negotiate for rebates and use a low-cost credit union loan instead of seemingly low-cost dealer financing that precludes rebates:
| New Auto Financing: Car costs $20,000 | ||||
| Loan Terms |
36 Months |
60 Months |
||
| Rates |
0% APR |
Credit Union 3.0% APR* |
2.9% APR |
Credit Union 3.0% APR* |
| Cost of new car |
$20,000 |
$20,000 |
$20,000 |
$20,000 |
| Less rebate |
$0 |
$2,000 |
$0 |
$2,000 |
CNN cites CUs as good source for cards
NEW YORK (6/9/10 CUNA)–Credit unions are an alternative for consumers who are looking for a good deal on credit cards, CNNMoney.com said Monday.
CNN cited a recent op-ed piece by two Harvard University doctoral students who discussed a study they conducted about investor-owned banks versus member-owned credit unions.
“They found that credit cards from credit unions were less likely to charge fees and penalties that big banks do,” CNN said. “And when fees are involved, those fees are less.
“Credit union cards actually offer lower annual fees and longer grace periods than regular cards,” CNN added.
To learn more about SIU Credit Union’s Visa card, click here.
Why Do People Choose a Credit Union?
Why do people choose a credit union over a bank? It isn’t just a matter of one’s profession or union encouraging the choice – though that certainly plays a role. People like credit unions for other compelling reasons.
A fundamental (and philosophical) difference. Credit unions are not-for-profit organizations owned by their members; retail and business banks are for-profit private enterprises. A bank seeks to maximize earnings as it serves its customers. The more income it can derive from you, the better for its future. Banks have to answer to shareholders. Credit unions must ultimately answer to members.
Credit unions commonly use profits to fund reserves. Excess earnings may be indirectly returned to members – they can translate into reduced loan rates, higher interest rates on savings accounts (which are called share accounts), and lower fees. Some CUs have even sent members bonus checks.
A chance to potentially save money over time.
Money which banks might charge you, that is. Checking accounts are free at most credit unions. In most cases, a checking account at a CU requires no minimum balance, and there are no per-check fees or overdraft fees. Historically, most credit unions haven’t returned cancelled checks to their members – mostly because of the expense. However, many CUs provide them at request.
What about ATMs? Well, there are more than you might think. Many credit unions belong to the CO-OP Network, a credit-union only ATM network with more than 28,000 ATMs in America. Credit Union 24, a member-owned, full-service ATM cooperative, helps CUs offer their members more than 100,000 ATMs and more than 50,000 surcharge-free ATMs.1,2
If you need to get a loan to buy a car or some other major item, the person on the other side of the desk may quickly ask you if you belong to a credit union. There’s a reason for that: loan rates at CUs are often better than those at banks.
Are your assets federally insured at a credit union?
Yes, in almost all cases. Just as almost all banks are FDIC-insured, about 98% of credit unions are federally insured through the National Credit Union Share Insurance Fund, administered by the National Credit Union Administration (NCUA). No member of a federally insured credit union has lost a cent of their insured credit union savings in the NCUA’s history.3
A share account at a federally insured credit union is insured up to $250,000 through the end of 2013 as a result of the Emergency Economic Stabilization Act of 2008, the same level of insurance that the FDIC affords bank accounts.3
Credit unions may not be as numerous as banks, but these are some of the reasons why their members prefer them. If you have eligibility to join a credit union, it is worth seeing what that credit union can do for you and comparing the potential long-term savings of a credit union relationship against a bank relationship.
Jeff Rose is a Representative with SIU CU Investment Services which is a DBA under LPL Financial. He may be reached at Good Financial Cents, 618-549-8632 or jeff.rose@siucu.org.
This material was prepared by Peter Montoya, Inc. not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Jeff Rose is a Registered Representative with, and securities and insurance products are offered through LPL Financial and its affiliates,
Member FINRA/SIPC. SIU CU Investment Services is not a Registered Broker/Dealer and is not affiliated with LPL Financial.
| Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value |
| Not Insured by any Federal Government Agency | Not a Bank Deposit | |
Citations.
1 co-opfs.org/public/locators/atmlocator/index.cfm [12/23/09]
2 cu24.com/mapcoverage.asp [12/23/09]
3 ncua.gov/Resources/ShareInsuranceToolKit.aspx [12/23/09]
The New Year is a time for hats and horns—and resolutions.
Your credit union offers low-fee options for all your financial needs. One study pegs the member benefit at about $240 a year per household, or $10.9 billion* a year for all members.
Keep more of your money in the New Year. Talk to us about switching all your accounts to the credit union, where you’ll pay lower fees and lower interest rates to borrow, and earn more on savings.
That calls for hats and horns!
* Source: CUNA Economics & Statistics
Finance Your Next Vehicle with One of Our Dealer Partners
SIU CU Works with Many Local Auto Dealers
SIU Credit Union works with many auto dealers in Southern Illinois. Our special relationships with these companies allow us to offer you financing direct from the dealership. So the next time you are buying a car from one of the following auto dealerships make sure you tell them that you want your auto loan from SIU Credit Union!
SIU Credit Union Indirect Auto Dealers
(click on the link to visit their web site)
- Auffenberg of Carbondale
- Auffenberg Chrysler of Herrin
- Baril Auto Sales
- Cars Inc.
- Foley Sweitzer
- Marion Toyota
- Vic Koenig Chevrolet
- Vogler Ford
- EN Baker / Cash’s Baker Chevrolet
- Smith Motors
- Ike Honda
- Absher-Arnold Motor Sales
- Ron Ward Chevrolet
- Marion Ford-Mercury, Inc.
- Weeks of Benton
- Black Diamond Harley Davidson
- Marion Mitsubishi
- Weeks Chevrolet Pontiac Buick GMC
- Chip Banks Chevrolet
- Jim Hayes Inc.
- SI Motorsports
- Yamaha of SI
- Frank Farmer Chevrolet
- Linwood Motor Company
- Coad Chevrolet-Pontiac-Buick-Cadillac
- Coad Ford
- Hughes Auto Sales
Get Discounts on New GM & Chrysler Cars-Become a Credit Union Member! www.LoveMyCreditUnion.org
CBS Early Show, other Media Give Boost to Credit Unions
Is it time for consumers to dump their banks? That’s a question the CBS Early Show posed to consumers in a highly positive Thursday story about credit unions.
The story, “Credit Unions Better than Banks For You?” compared credit unions with banks, touting credit unions’ benefits–including low rates, member service and the fact that credit unions are still lending, even though many banks have pulled back.
“[Consumers are] tired of all the big fees being imposed by the big banks, they’re tired of the really bad customer service…so they’re making the switch from the banks to the credit unions. Membership was up 11% in the third quarter,” said “Early Show” financial contributor Vera Gibbons.
“If you look at the bank loan portfolios, they’re actually shrinking, whereas the credit union loan portfolios are growing,” she added. “What that means–is if you’re a creditworthy customer you stand a better chance of getting a loan at a credit union than at a big commercial bank.”
She also noted that credit unions offer higher rates on deposits and lower rates on loans, especially auto loans.
“The overall satisfaction rate is very high at credit unions,” Gibbons said.
Another story by CBS Moneywatch Thursday said to “consider a credit union” as one of the “nine best strategies for borrowing in 2010.” The story cited a 2009 Pew Charitable Trusts Study, which said credit union credit card interest rates are about 20% lower than banks. The Pew study has received significant attention from other media including The New York Times and The Wall Street Journal.
On Thursday, CNBC noted that consumers should check out credit unions when seeking auto loans. The story quoted Jim Hanson, Credit Union National Association vice president of personal finance. Hanson told CNBC that credit unions’ rates tend to be 1% to 1.5% lower than banks’.
To see a video of the CBS Early Show story, “CUs Better than Banks for You?” or to read the full MoneyWatch article, use the following links:
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