Blind Discounting: When 0% Financing Isn’t Really 0%

Buying big-ticket equipment or vehicles is rarely a simple cash transaction these days – dealers love to promote “0% financing” or “0% rate” offers because these sound compelling and straightforward. But actually occurs behind the “0%” pitch can be a lot less transparent. Many dealers offer a lower “cash price” if you pay upfront, but then when you choose to finance (even at “0%”), they tack on a hefty “finance charge” that effectively embeds interest or markup, which means your eventual cost is higher than it appears.

What is Dealer Blind Discounting?

• Here’s how the scheme works in practice:
• – A dealer quotes you a “cash price” (say, $100,000) and says “if you finance, we’ll do 0% interest.”
• – But if you finance, the sales contract shows some “finance charge” – say $12,000 – that wouldn’t appear if you paid cash.
• – That finance charge is essentially hidden interest: the dealer (or its finance arm) has built in a cost of capital, dealer markup, or hidden fee, but labelled it as a “finance charge” rather than a stated interest rate, in order to make the “0%” rate look appealing.
• – The buyer sees “0%” and thinks they’re getting no interest, but in reality they’re paying more than they would have if they’d paid cash.

In effect, the “discount” for cash is real, but the financed buyer doesn’t benefit from it – and often pays for it in the form of the hidden finance charge.

Why This Matters

• 1. Total cost of capital is higher than it appears. The apparent “0% interest” is misleading if a sizeable finance charge is added. The buyer may accept terms that seem favorable but are not, in reality.
• 2. Transparency and disclosure issues. Under the federal Truth in Lending Act (TILA) and state laws, finance charges and amount financed must be disclosed early. For example, the finance charge must be distinguished from other fees (CFPB).
• 3. Regulatory attention. The Federal Trade Commission has flagged dealer financing practices (including interest markups and hidden fees) as one of the major complaint categories. (FTC). Moreover, the FTC’s recently finalized “CARS Rule” takes aim at dealer misrepresentations about financing, purchase price and add-ons.

How to Spot the Trap

• Here are red flags and questions buyers should ask:
• – When you finance, is the “cash price” lower than the financed price? Request the cash-price sheet along with the financed-price sheet, side by side.
• – Is there a “finance charge” listed in the contract under “amount financed”? Is that finance charge reasonably relative to the term and amount, or suspiciously high?
• – Regardless of “0% rate,” what is the amount financed, number of payments, total of payments, and total cost of credit (i.e. cost of interest + fees)? If the financed amount is higher – or the total payments much bigger – than the cash-price amount, you’re paying extra for something.
• – Was the “0%” advertised rate truly available (for your credit tier) or did the dealer require certain conditions (i.e. large down payment, extended term, etc)?
• – Is there any disclosure of dealer markup or serve on the financing portion? (Dealers often have a spread between the bank buy rate and the rate offered to the customer).
• – Are “add-ons” – such as GAP insurance, warranties, theft protection, VIN etching, etc. – being placed into the amount financed and finance charge? The FTC warns against such “junk fee” practices.

What You Can Do as a Buyer

If you’re shopping for equipment and hear a dealer say “0% financing,” take a minute before signing. The best thing you can do is negotiate a cash price up front. Approach it as if you were paying cash, even if you know you’re going to finance it later. That gives you a clean point of reference against which to compare any financed offer.

• Once you have that number, ask for a full breakdown of the financed deal. Specifically request the following in writing:
• – Cash price
• – Finance charge
• – Loan term (in months)
• – Overall number of installments
• – Overall cost of payments

If the “total of payments” ends up being higher than the cash price, that difference is the real cost of financing – regardless of what the interest rate says on paper.

• You also can ask questions like:
• – “Why is there a finance charge if the rate is 0%?”
• – “Would I get a lower price if I paid cash?”
• – Are any add-ons or fees automatically included in the amount financed?”

A reputable dealer should be able to clearly explain each line item and show you how they came up with the final price. If they can’t – or won’t – that’s a red flag. In other words, “0%” might look like a free loan, but it’s often just a marketing hook that shifts where the costs appear.

Final Thoughts

When purchasing equipment, always base decisions on the total cost, not the advertised rate. If the price is higher when it is financed, then you are paying hidden interest, plain and simple. Don’t be afraid to ask for transparency, compare third-party financing options, or simply walk away for a moment.

At Truecore Capital, we help business owners cut through that confusion. Our goal is to make sure you understand each dollar – whether it’s price, term, or true cost of financing. When you know what you are signing, you keep control of your capital and protect your bottom line.

Ready to Explore Your Options?

Give us a call at (805) 422-7342 or submit a quick contact form below and one of our specialists will reach out to you shortly.

• Sources:
• – Consumer Financial Protection Bureau (CFPB), “What is a Truth-in-Lending disclosure for an auto loan?”, [https://www.consumerfinance.gov/ask-cfpb/what-is-a-truth-in-lending-disclosure-for-an-auto-loan-en-787/].
• – Federal Trade Commission Consumer Advice, “Discriminatory financing and bogus fees at the car dealer? No thank you,” [https://consumer.ftc.gov/consumer-alerts/2022/10/discriminatory-financing-bogus-fees-car-dealer-no-thank-you].