The bitter pill beneath sugarcoated financing
What could possibly be wrong with a zero-percent auto loan?
Plenty, particularly if you can't get the deal or get so excited by the financing
offer that you forget to negotiate a good price for the vehicle.
Whenever dealers sweeten their deals for auto buyers, consumers
should evaluate the offers carefully. Even a zero-percent loan doesn't automatically
mean it's a good deal, or that it's the right one for you.
Interest-free deals are reserved for customers with excellent
credit. Just how good your credit needs to be varies by automaker. Each automaker
has its own financing company with its own credit qualifications.
Most interest-free financing offers require financing terms of
three years or fewer. So you'll have to shell out some pretty hefty monthly
payments if you qualify.
Let's say you're borrowing $20,000 to pay for your new car. With
a three-year term at zero percent interest, your family would have to shell
out more than $555 a month in car payments. A five-year term at 3.9 percent
with monthly payments of $367.43 may be more manageable, even though you have
to pay interest.
Compare loan rates
As tempting as a dealer's discount financing may seem, don't overlook deals
from local banks and credit unions. This Bankrate.com
search engine will help you compare car-loan rates in your area.
It's wise to have an auto loan ready to go before you set foot
in a dealership. That way if a dealer wants your financing business, he's going
to have to beat the best rate you've found on your own.
By shopping ahead, you'll learn what kind of financing deals you
qualify for. The dealer won't be able to talk you into signing on for a loan
with a higher interest rate than you deserve.
Whether you land an incentive or not, it's important to negotiate
the price of the new car as well as the price of your trade-in.
Automobile Buyers Guide, AutoSite,
Blue Book and CarPrice.com
are among the sites offering timely pricing information. Do your homework.
"A consumer has to be very, very well-informed," says
Robert Holb, owner and general manager of Consumers Auto Consultants. "Carefully,
carefully research it. Be prepared to leave if you're not absolutely certain
that's the vehicle you want and the best price."
Be sure to visit several Web sites when researching pricing information.
Everything from sticker price to customer rebate information may vary. It's
wise to cover all the bases. When in doubt, contact an auto manufacturer directly.
Be sure to ask about regional incentives in your area. You could
save hundreds, maybe thousands more, by snapping up a regional incentive.
Don't forget to negotiate the price
Too many people equate landing a big incentive with landing a good auto deal.
They're not the same thing. A big incentive can help you land a good auto deal,
but it's no guarantee.
Lots of new-car buyers learned that lesson the hard way last year.
They nabbed zero-percent financing, but failed to negotiate the price of the
"There were many, many people who paid much more than they
needed to," says Holb.
Many folks would have been better off negotiating the price of
the car, snapping up a cash rebate and taking a loan from a local bank or credit
Not sure how to choose between discount financing and a hefty
from Bankrate.com will help you crunch the numbers.
Keep in mind -- anyone who purchases a vehicle with a cash rebate
gets the rebate. But not everyone qualifies for discount financing, especially
those zero-percent deals.
-- Updated: Jan. 12, 2005