Don’t be a sucker. 0% APR is really a marketing tool designed to help you affirm what you know is an irrational desire to purchase a very expensive depreciating liability. Trust me, the finance charge is built into the price of the car as sold to you. When you finance a car you have purchased a liability, not an asset.
We want to impress our friends. We work hard. We need reliable transportation. The excuses for this irrational behavior are probably infinite. Most of us never really achieve financial freedom because we buy too many liabilities. Here is a little illustration.
You buy a new Honda Accord in 2007 for about $27,800 and finance for 60 months at 0% APR with monthly payments of $500. Fast-forward 5 years. You have a paid-for Accord worth at most $14,150 according to NADAguides.com.
If you did not sign up for this $500/mo liability and decided instead to pay yourself this money - in 5 years you would have accumulated a total of $32,323 (using a 3.5% interest rate which is attainable through a 5 year fixed annuity).
$32,323 – $14,150 = Total cost for a 0% APR car loan is really $18,173.
I’m a realist, I know people need transportation. I’m merely illustrating the power of not signing up for liabilities and how detrimental they can be to your personal finances. I am a big advocate for getting out of car payments as soon as you are able. That may mean you sell your car and pay cash for a less expensive one, perhaps you accelerate the pay-off of your existing car with income tax refunds, a little extra each month toward the balance or some combination of these. Bottom line; get out of car payments as soon as possible. After taxes and your mortgage or rent, car payments are usually the biggest drag on your financial freedom.