ALL OF THOSE advertisements touting 0% and low APR financing and thousands of dollars in cash back are enough to pique any prospective car buyer's interest. But, as many consumers have rudely discovered, that's all they may be good for.
Hoping to lure car shoppers back onto their lots, struggling auto makers are offering all types of great-sounding financing deals and discounts. For a car buyer to actually take advantage of these deals, however, is another matter. Even if you're convinced that your standup credit score means you'll be a shoo-in for the 0% financing advertised on that brand new BMW 135i Convertible, think again. Not only are 0% deals incredibly limited, but they're also extremely hard to qualify for and may even require a significant down payment.
"The point of [the 0% APR deals] is to get people into the dealership and to get them all excited about the car until they realize they don't qualify and have to settle for a higher APR," says Jonathan Wahl, a spokesperson for auto information web site Edmunds.com.
Currently, six major auto makers including Chrysler, General Motors and Mazda offer 0% financing, according to Edmunds.com. Most of the models that qualify, however, are gas-guzzling trucks and SUVs that dealers desperately want to clear from their lots. Try to find 0% deals on more popular European luxury models or Japanese compact cars and it will be an exercise in futility. "You won't find a single fuel-efficient vehicle [with 0% APR] unless it's struggling in terms of sales," says Wahl.
Even if you covet the behemoth Dodge Nitro (marketed with an offer of a 0% APR through the end of July), attaining that spectacular financing will be far from a cakewalk. Potential buyers not only need to boast a credit score of 680 or higher to qualify, but they'll also have to cough up a steep down payment of at least 10%.
While the prospect of landing the elusive 0% or a low APR may seem challenging, it's not impossible. Here's what you need to know before stepping onto the dealer's lot.
Know the Credit Score and Down Payment Requirements
Before you go for a test-drive, visit web sites likeannualcreditreport.com
to find out your FICO credit score. That way, you can better determine whether the interest rate offer you receive from the dealership's financing department is fair or not.
Also see our tips on how to boost your credit score
As mentioned earlier, even if your credit score passes muster, you'll still need to afford a down payment of at least 10% in order to lock in that magical 0% rate. If your score is below 680, then forking over a 20% down payment can increase your chances of getting 0% APR, says Jesse Toprak, executive director of industry analysis at Edmunds.com.
Get Preapproved for a Car Loan
Before you accept any offer from a dealership's financing department, shop around at local banks and online for the lower APR deals first.
To get quotes contact credit unions, which usually offer relatively low rates, your bank (especially if you have substantial deposits there), or financial services providers, such as Capital OneAuto Finance and HSBC Auto Finance.
Get preapproved for a loan by whoever quotes you the best APR. With that offer in hand, find out what the dealership will offer. If you don't qualify for 0% financing a rate only available through dealerships leverage your preapproved loan to try to negotiate a lower APR from the dealership.
Choose Between 0% APR & Cash Back
Typically, if an auto maker offers a 0% APR it will also offer cash back incentives. Chrysler, for example, is marketing its 2008 PT Cruiser with either a 0% APR for 36 months or $1,500 cash back (through July 31).
To help you determine which option is better for you, consider how much interest you will pay on a loan with an APR above 0% versus how much you'd save by taking the cash. If you only plan on hanging onto the car for a short period of time (say, less than three years) then typically cash back makes more sense because you'll get the savings upfront. Plan to hang onto a car for more than three years, however, and the interest savings you'd reap from a 0% deal could be more significant. "If they're offering you more cash back than you'd have to pay in interest then that's a much more enticing offer than paying 0% financing," says Wahl.
To help you determine whether a 0% APR will help you save more than cash back (or vice versa), crunch the numbers on our calculator.
For Added Savings, Hunt Down Manufacturer-to-Dealer Deals
To walk out of the dealership with the best deal, you'll need to walk in well-educated about the unadvertised discounts available to you.
Often times, auto makers offer dealers financial incentives to sell specific models. In turn, the dealerships don't have to offer this money to the consumer. "It's the type of incentive that most dealerships won't even tell you exists," says Jackson. "The dealer can determine to pass it on to the consumer," or keep it for themselves. More often than not, dealerships will offer this incentive on a vehicle that's not selling well and that they're eager to move off the lot, rather than try to sweeten a deal on a popular car for a hesitant buyer, says Wahl.
Some current manufacturer-to-dealer cash deals on the market: Cadillac is offering dealerships $2,720 for each 2008 Cadillac SRX V8 RWD or AWD (not equipped with optional luxury packages) that they sell. And, Land Rover dealerships receive $1,500 from the manufacturer when they offload a 2008 Land Rover LR2.
The problem for car buyers is that manufacturer-to-dealer incentives often go unadvertised. Edmunds.com tracks and lists such deals.