Some auto dealers revive 0% financing

by Center for Personal Finance editors

NEW YORK (4/24/06)--Auto loan interest rates are higher today than they were a few years ago, making 0% financing offers more costly to manufacturers than offering cash back. But 0% deals move cars off the lot, according to industry analysts, and manufacturers are bringing them back (SmartMoney.com April 7).

Don't expect all dealers to pitch 0% financing, and don't expect deals on all models. Current promotions generally are limited to vehicles that are more difficult to sell, such as Jeeps, gas-guzzling sport utility vehicles (SUVs), four-wheel-drive vehicles, and cars that aren't in high demand.

A few years ago, 0% financing was limited to 24- and 36-month loans. Now, 0% annual percentage rate (APR) promotions are offered on loans as long as 60 or 72 months on some models.

Ford recently announced a 0% financing promotion for its hybrid vehicles (Autoweek.com April 6). The program runs through July 5; car buyers could opt for a $500 down payment-matching incentive instead. Ford hopes that the promotion will turn around slower-than-expected sales in some parts of the country.

Before you visit a participating dealer, shop around and do your homework:

Get a copy of your credit report and make sure your record is clean. Not everyone qualifies for 0% financing--the decision is up to the auto manufacturer, who relies on your credit rating. If your credit isn't close to pristine, you'll be moved up to a higher interest rate. Go to annualcreditreport.com for information on ordering your free reports.

Read the fine print and look for restrictions. Are there prepayment penalties? Is the down payment larger just to qualify for 0% financing, or will you have to sacrifice color, style, or options? Ask whether the price of the vehicle is negotiable; if not, you may wind up paying more for the car just to get 0% financing.

Compare all dealer offers to credit union financing.