Throughout my years on the sales floor, I have met many people who have compared the vehicle I’m selling to one at another dealership down the street with 0% interest financing. I’m talking about the promotional rates provided by the manufacturer when buying a new or certified pre-owned car. These are usually mentioned in the ads you hear on the radio. As the interest rate is an important factor in the purchase decision of a vehicle, it definitely should not be the deciding factor or even close to that when deciding between two cars. I know people (and maybe this is you) who have bought one vehicle over another solely because of the interest rate.
Here is a comparison of 2 new competing vehicles with 2 different cars with different interest rates.
2014 Nissan Altima SL 2.5L
Suggest Retail $31,873
60 months finance @ 0.9% = $609/month
2014 Honda Accord EX-L Navi 4-cyl
Suggest Retail $31,810
60 months finance @ 1.99% = $664/month
Using the company’s website to build and price the two vehicles, I selected two 5-year terms. We see the Honda Accord is $55/month higher with an extra 1% charged annually for interest ( 1% does not equate to the extra $55/month entirely, but we’ll go ahead anyways). Multiplying the $55 by the 60 month term to find the total difference someone would pay for this car over the other, we get a total of $3300.
Now if it end’s here, then you could assume the Accord is more expensive. But we look deeper..
Here is a breakdown on Canadianblackbook.com of estimated trade-in values of the similarly loaded vehicle after 4 years.
2010 Altima S 2.5 Sedan
Add leather, sunroof, power seat, navigation
2010 Honda Accord EX-L Sedan
Add navigation and leather
0% interest reduces the resale value of the vehicle. The Honda Accord, although $3300 more expensive at the first look, provides over $3000 more that the Altima when traded-in. The easiest way to explain how 0% lowers the resale value is if a customer can by a new one and get 0%, the used one has to be a much cheaper deal to make up for them paying with their own cash or financing privately at a higher rate for them to consider the used vehicle advantageous. Standard rates (rates by a bank) are anywhere from 4-6% currently.
Fun fact: only 3% of people pay for their vehicles with actual cash. The rest are borrowing from banks, lines of credit, credit cards, relatives, or friends.
The truth about 0% financing is that it is a promotional tool that is the same as lowering the price on a vehicle. But if you pay less for a vehicle you can expect to get less for it when you decide to sell. The old saying is true “Buy high, sell high. Buy low, sell low”.
In the above transaction, when factoring in the money saved when re-selling and from the higher reliability rating (less costly repairs), along with a better driving experience and more luxury feel, you more than recover your 1% interest and in the end drive the better valued vehicle!
Want to get into a Honda? Send me a message we’ll make that happen.