Pay cash or finance at 0%?

There are several offers available to new vehicle buyers, especially in the summer and fall. Among these offers, we find that 0% financing and rebates when you pay cash are quite frequent. Sometimes this kind of promotion can be applied to the same model, and the consumer is left with a difficult choice.

Whether you have money in your account or not, you can enjoy a discount when paying cash if you borrow from a bank or a line of credit. There will however be interest on the loan while the manufacturer could offer a 0% financing. What to do?

“When the choice is between the 0% financing and cash, it is important to take out a calculator and put a few numbers on paper” says a sales representative at Lallier Honda Hull. Let’s look at a few scenarios.

You must borrow from the bank to pay cash

The manufacturer offers 0% financing or a cash rebate, but you do not have the required amount in your account. You must calculate the total amount of the loan from the bank including interest, less cash discounts, and compare it to the total loan amount at 0% during an equivalent term.

You have the amount in your bank account to pay cash

In such a case, sit down with your financial advisor and see how much interest you can earn if you keep the transaction amount in your account and invest it. Remember that when financing at 0 %, you pay no penalties, so maybe you will make more if you keep all of your money and use it for something else.  .

Important variables to consider are therefore the amount of the discount received for a cash payment, the percentage of interest you will earn on your money if is invested, and the interest rate of a loan from the bank. You can then calculate the total cost of each alternative.