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Zero Cost Financing Means You Are The Winner

They're back! Zero percent financing on a new car purchases that is. No, you can't find these offers on every model, but you can find them on many end of the model year vehicles including the Toyota Tundra, many GM models, and select foreign makes. Is zero percent financing a great idea? You bet it is! In fact, if you have the cash to pay for a new car - don't. Instead, take out a zero percent interest loan and invest the money. You'll get a new car for less and reap a nice bit of interest income on top of that.

Yes, that slow selling model has zero percent financing to move the vehicle off of dealer lots. In the case of the Toyota Tundra, high fuel prices have hampered sales and Toyota's next version of the truck is ready to be released. So, zero percent financing for sixty months is the order of the day.

But what if you have the cash to buy the vehicle instead? Well, in this case financing the entire amount makes perfect sense. For example, if you finance $25,000 on the Tundra you will be paying $416.67 per month for the next 60 months. Take that $25,000 you planned to hand to the dealer and invest it in a 60 month CD paying 5.50% interest and your money will mushroom to $32,893 when your zero percent loan is paid off. By letting Toyota finance your purchase you made $7,893 in interest [before taxes of course].

Clearly, if you can get the automaker to finance the car for no money down and no interest, doesn't that make sense?

Let's take a look at it another way: If you were to divide the $32,893 windfall by 60 - the number of months you are financing, you would earn back your principle and interest at $548.22 per month, a net gain of $131.55 each month. I don't know about you, but that money could be used for gas, insurance, registration fees, etc. Why not allow the financing company to fund your next purchase instead?

Importantly, when purchasing any new vehicle make certain that all rebates are taken off of the price too. Many offers give to you either the rebate or free financing. Grab the rebate instead if it lops off at least $5000 from the sticker price as a $20,000 loan financed at 5.9% for 60 months would cost you $385.73 per month. You can still invest the $20,000 and get a return of $6314 at 5.5% if you elect to go with this second option.