Dealership Sales Incentives--Read the Fine Print

by Center for Personal Finance editors

Ads promoting auto dealership sales incentives such as 0% financing, low-rate financing, or rebates can be enticing, but read the fine print before getting too excited.

Ads often sound like anyone qualifies and rates are good on just about any vehicle. Often this is not the case.

It's not unusual for dealerships to use "bait and switch" tactics to get consumers in the door, only to find that what they thought was true, isn't.

Look for the letters "OAC." Most consumers won't be familiar with this acronym, meaning "on approved credit." In reality, only about 25% to 30% of consumers qualify for 0% financing. You have to have what's considered the best credit score--typically 685 or higher--to qualify for that special financing deal.

The fine print also might read, "Advertised vehicles may differ from shown vehicles," "0% available on all new brand 'X' automobiles, excluding make 'Y' automobiles," "Prices good through 'a certain date'; subject to change without notice," or "Rebate good only if financing is done through dealership." These phrases mean quantities and styles are limited, sale dates can change instantly, and you might be forced to finance through the dealership.

Do you wonder how auto dealerships can offer great rates and a rebate, too? Pay attention to what they're charging for GAP (guaranteed asset protection) insurance and mechanical repair coverage. GAP insurance covers the difference between what a consumer owes a lender and what an auto insurer will pay if a car is totaled or stolen shortly after it's purchased--when the amount owed is still high. Mechanical repair coverage extends the dealer warranty, making the resale value of a car higher.

Some credit unions offer these products, often at a substantially lower cost. Check with your credit union today for all your auto financing needs.

June 28, 2004