What is the catch with zero percent financing?

[Anonymous]

Especially when it comes to car loans? We saved up enough cash to buy a new car but if we think we are getting the car at a fair price, can we take the dealer/auto zero percent financing? What is the catch here?
TIA.

[Anonymous]

I don't know if this applies to cars, but I know that with credit card financing offers like that, the companies know that the majority of people will not pay off the balance before the 0% financing runs out, so they'll make a ton of money on interest on the back end.

[Anonymous]

If you pay on time or early, there's no catch. Sometimes, though, these offers come with huge balloon payments (usually the total of the deferred interest) if you miss the payment by even a day. That said, we've taken advantage of these offers before and it's worked out well. You just have to stay on top of the due date...automatic payments work best.

[Anonymous]

You can probably drive a harder bargain with cash. That's the catch.

[Anonymous]

Agree with 14:57-- the profit on the 0% financing is priced into what you pay for the car.

We've typically done all the negotiation letting the sales rep assume we would finance, then we say "So, if we were to pay cash, what could you do on the price?" Usually results in a discount, and since I hate owing anyone anything, I'm happy to pay cash

[Anonymous]

It'll stay on your credit report. There's no catch if you intend to pay it off before the due date. I've done this in the past to bump up my credit score. Take out 0% financing, make three payments, then pay it off.

[Anonymous]

I doubt this matters TOO much, but you do pay a higher rate for car insurance if you have a car loan. We paid off our car loan about a week after we bought the car, but didn't tell the insurance company until it was up for renewal in 6 months. The rate dropped $100 when we said it was paid off. So about $100 every six months does add up.