We Went Behind the Scenes to Find Out What 0% APR Financing Really Means
In automobile sales the concept of APR, or annual percentage rate of charge, is a number that is intended to encompass the total costs of purchasing a car, including the interest rate on a loan, financing fees, insurance requirements, taxes, and other expenditures that are not immediately apparent. The Truth in Lending Act, enacted by the United States Congress in 1968, introduced the APR calculation and required all consumer lenders to advertise on this basis so that potential buyers could reliably compare absolute costs of purchases. However, in the early 1980’s car makers started to find loopholes in the Truth in Lending Act that allowed them to exploit an ambiguity in the law’s wording and “eliminate” financing charges without actually having to charge less. This is where the term “0% APR financing” comes from, and the reason that it seems too good to be true is that it usually is! Car manufacturers today will often disqualify you for rebates, require shorter-term loans, and limit your buying options, all behind the promise of giving you 0% APR financing.
So what should you do about it? The truth is that the APR financing number was initially intended to benefit consumers, but now it only serves as another obstacle to navigate in this crazy mixed up world of car sales. The best thing you can do as a consumer is to do some calculations yourself (I bet you thought that you wouldn’t have to use math after high school!) and try to see past all of the gimmicks and sales tactics they throw at you. For Sherman Ave’s Finance 101, I’m Walter KlondikeTM. Tune in next week when we reveal all the dirty little secrets behind adjustable rate mortgages.