Interest-free auto loans extended into next year

Those zero-percent financing deals are going fast.

Come Nov. 1, most will disappear. New car shoppers keen to cash in on these deals should get to auto lots ASAP.

In an effort to jumpstart auto sales and boost a sagging U.S. economy, General Motors, Ford and DaimlerChrysler rolled out interest-free financing deals on a wide range of new vehicles in late September.

This prompted other automakers, including Toyota, Mitsubishi, Mazda and Suzuki, to roll out interest-free deals of their own.

Treats for auto shoppers
October has turned into a spectacular month for new car buyers. Just check out these promotions:

• GM is offering interest-free, 36-month loans on all 2002 cars and trucks, and interest-free loans for as long as 60 months on 2001 cars. Three-year, zero-percent financing is also available on 2001 trucks. The discounts are available on all GM lines, including Saab and Saturn.
• Ford is offering zero-percent financing on 36-month loans on all 2001 and 2002 cars and trucks in its Ford, Lincoln and Mercury divisions. Interest-free financing is also available on 48-month and 60-month loans for 2001 passenger cars.
• DaimlerChrysler is offering interest-free financing on 2002 cars and trucks in its Chrysler, Jeep and Dodge divisions. Several vehicles are excluded from the interest-free promotion including the Chrysler PT Cruiser, Chrysler Prowler, Dodge Viper and Jeep Liberty.
• Toyota is offering zero-percent financing on 2001 and 2002 Corollas, Tundras and 4Runners.
• Mitsubishi is offering no money down, no interest and no payments for a year on any new 2001 or 2002 vehicle.
• Mazda is offering interest-free financing and no payments for six months on any 2001 Protégé, Miata, MPV, 626, Millenia, Tribute and B-series trucks.
• Suzuki is offering zero-percent financing for up to 60 months on 2001 models and zero-percent financing for 36 months on 2002 models.

If you want to snap up any of these deals you’ll need to act fast. Only GM, DaimlerChrysler Mazda and Suzuki are running interest-free promotions past Oct. 31.

GM and DaimerChrysler’s promotions run through Nov. 18. Mazda’s interest-free deals end Nov. 30. Suzuki’s interest-free financing program for 2002 models ends Jan. 2, 2002.

Let’s face it: a zero-percent financing rate on an auto loan is quite a deal.

“That’s darn good,” says Paul Taylor, chief economist at the National Automobile Dealers Association. “Zero-percent financing is awfully attractive, even compared to 2.9 percent, and it’s certainly attractive compared to the prevailing auto rates at financial institutions.”

Deals for all credit types
Of course, keep in mind these deals are available only for those with squeaky clean credit. Those with lesser credit ratings can still get a good deal, but probably not zero-interest financing.

Still, it’s a good opportunity for those with good credit. Let’s look at a $20,000, 36-month auto loan. On a loan with a 7.38 percent interest rate — the Bankrate.com national average for 36-month auto loans — you’d pay $2,356.82 in interest over the life of the loan. Even on a loan with a 2.9 percent interest rate, you’d still have to shell out $906.76 in interest.

With an interest-free loan, you don’t pay a single penny of interest. Zero-percent financing means you pay zero interest over the life of the loan. You take the $20,000 and divide by 36 to get your monthly payment. That’s easy math — and quite a deal.

But it’s not the only good deal available to car shoppers this fall. Don’t overlook cash rebates. If a rebate is hefty enough, there’s a chance you could save more money by snatching up the cash and financing your loan through a bank or credit union. This calculator from Bankrate.com will help you crunch the numbers.

GM, Ford and Daimler Chrysler launched the interest-free incentive programs after two members of the U.S. Cabinet made a trip to Detroit.

Secretary of Labor Elaine L. Chao and Secretary of Commerce Donald L. Evans met with the top executives of GM, Ford and DaimlerChrysler on Sept. 19. They urged the Big Three to do what they can to spur a weakening U.S. economy.

GM, followed by Ford, quickly launched interest-free financing options. DaimlerChrysler launched a more limited program on Sept. 25. Other automakers followed.

Car shoppers looking for bargains will like what they see. Discount financing and hefty rebates are widespread. It was a good time to buy a car even before the latest wave of interest-free incentives hit.

Regardless of where you fall in the credit spectrum, there’s a good chance you’ll be able to land a nice financing deal this autumn from a bank or credit union. Auto shoppers of all credit levels catch a break whenever the Federal Reserve cuts rates.

Bankrate.com research shows that interest rates on new-car loans tend to shift in lock step with the prime rate. When the Fed cuts rates, the prime rate drops and rates on auto loans from financial institutions soon follow suit.

With all the Fed rate cuts so far in 2001, it’s an awfully good time to be shopping for auto financing.

Know before you go
It’s a good idea to shop around for financing before you shop for a car. Be sure to check out deals from local banks and credit unions. This Bankrate.com search engine will help you compare car loan rates in your area.

Have an auto loan all set 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.

Be just as diligent when shopping for the vehicle itself. Autoweb.com, Edmund’s Automobile Buyers Guide, AutoSite, Autopedia, Kelley Blue Book and CarPrice.com are among the sites offering timely pricing information. Make note of the dates when each rebate is set to expire.

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.

Here’s one last tip and it’s an important one. It’s best to think of a new car purchase as three separate negotiations: the price of a car, the price of a trade-in and the financing. A car salesman will try to lump this stuff together. Don’t let him.

If you do, you might not notice when the purchase price of the car gets bumped up or the trade-in-value of your old car gets knocked way down.

Some dealers might even tell you that you can’t have zero-percent or any discount financing without paying sticker price. Don’t fall for it.

Insist on three separate negotiations and get the best deal you can on each one. Shop as many dealers as necessary to land the deal you want. The best way to land a good deal is to make dealers compete against each other for your business. Be persistent.

And keep crunching those numbers. Snapping up a big discount on the price of the car and signing on for a loan from your bank or credit union could be an excellent deal. It could even beat the interest-free, sticker-price- only financing deal that a dealer keeps going on about. Be sure to do the math.