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Is 0% Financing for Real?
Bill Lamon, Car Power Inc.

Making some sense of 0% Financing – is it for real…? It’s blazoned across every ad, and broadcast in every commercial. "Buy a new auto and pay 0% financing!" Sounds good, in fact it sounds real good. Yet, coming from an industry that has made a science of misleading advertising, can it be believed?

The answer is mostly "Yes", with some caveats, and some exceptions (so, what else is new?). In response to the horrific events of September 11th, and the ensuing concerns about curtailed consumer spending and economic slowdown, American automakers unveiled an unprecedented program to stimulate the sales of new autos. Clearly some insightful marketing analyst took to heart the old adage that "desperate times need desperate measures", and came up with a truly innovative incentive program – 0% financing!! Think about it – when is the last time you borrowed $20,000. $30,000, or even $40,000 - and paid No Interest!?! What a concept. Imagine the boardroom battles over this one between the marketing guys and the bean counters! Yea, it’s for real. Yes, you can buy a new car, truck, van, or SUV for 0%. No, they haven’t increased prices to compensate for lost interest (remember, this really is unprecedented). No, you don’t need super extraordinary credit (most "normal" good credit will qualify). Yes, some rebates are being offered (although usually you can have the cash rebate or the financing). However, there are restrictions and exceptions (there’s always that fine print or rapidly spoken disclaimer at the end). The longest term of 0% being offered (60 months-5 years) is, in most cases, only available on 2002 models. This means stock on hand – no orders. Many 2002 model-year vehicles do offer 0%, but only for 36 months (three years). Some models are not eligible (usually those with special option package pricing already). The good news is that most manufactures (both Domestic and Import) offer very low rate financing (like .9% to 4.9%) when the 0% does not apply – these are still very good rates. So just what does 0% mean, in terms of dollars and cents? Let’s take the "average" new vehicle sold today, at approximately $28,000 (wow – remember when the average house sold for that much). Assuming no money down (yes, you can do that – with good credit), and disregarding sales tax (no, you won’t be able to do that), a market-rate bank loan at 8% for 5 years would yield a monthly payment of $564, and you’d pay $5,839 of interest over the term of the loan. If you bought that same vehicle at 0%, your payments would be $467 per month for 60 months – or $97 less per month (remember, it’s got to be a 2001). If it were a 2002 model, and you opted for 36 months of 0%, your payment would be $778 (ouch!). For comparison, buy that 2002 with "special" financing of 3.9% for 5 years, and your payment is $513. What about leasing? These 0% programs don’t affect lease rates, but they do make financed payments competitive with lease payments. In this example, a 3-year lease based on 12,000 miles per year of use would have a payment around $450 to $480. Keeping in mind the residual value of some $15,400 that you’ll have to deal with at the end of the lease if you want to keep the vehicle, 0% financing is, once again, a really good deal! Remember, the goal of all this was to drive buyers to showrooms, and keep vehicles moving off the lots. What will happen next month? Time will tell, but for now, the allure of 0% financing has been a tremendously successful stimulant for buyers and carmakers alike. J. William Lamon is owner and founder of Car Power Inc. Bill will locate any make or model vehicle, negotiate the best price, arrange for quick and easy paperwork signing and vehicle delivery, and ensure the best value on the sale or trade in of your existing vehicle. Empower Your Automotive Experience, 303-694-6613.