Car Dealer's Special Interest Rates

Special rates are interest rates offered on a new car loan from the manufacturer.   These rates are often advertised as 0% or 1.9%, 2.9%, etc.

 

Because these rates are offered by the manufacturer they can only be used with the purchase of a specific make or model. Essentially, these rates are rebates that are applied to the financing instead of the price.

 

For example, Toyota may offer a rebate of $3,000 on the new Toyota Camry.  If the customer were to apply that $3,000 to the price of the car, they would reduce the overall cost by $3,000.  

 

On the other hand, Toyota may also advertise 2.9% financing.  In this case, instead of applying the $3,000 to the price, they are applying it to the interest charge. They are “buying down” the rate by applying the rebate to the loan.

 

 

Also, special rates are usually tied to a specific Term (length of contract) and are designed to produce an attractive advertising tag line. For instance, a manufacturer may advertise 2.9% but only for a 36 month (3 year) loan. Even though the rate is low, the shorter term will produce a higher payment.

 

It is almost always better to use the rebate to reduce the price of the vehicle instead of applying it to the loan.  This is because when the customer reduces the principle cost, they are "locking" the rebate into their purchase.  On the other hand, if a customer uses the special rate, if they sell the car before the end of their loan they will not realize the full benefit of the rebate.

 

 

There are many instances when the special rate will be a better option for the customer. (The “Cheat Sheet Car Price Calculator ” in Chapter Three will calculate and compare your options before you begin negotiations with a dealer.)