Jordan Goodman is the author of Everyone's Money Book, available at 888-201-6300. This is the third edition of the book. You can also visit his Web site at www.moneyanswers.com. He talks with us on Thursday mornings.

September 26, 2002

"Buying a Car in the Era of 0% Financing"

What used to be impossible to expect -- 0% financing for new cars -- has now become so commonplace and expected that carmakers can't seem to go without it. Just last Friday, General Motors resumed its 0% financing offer for all its 2002 model cars, after two weeks when sales had plummeted when their previous 0% program expired. Right now, GM, Ford and Chrysler all have extensive 0% financing offers on their entire line of cars, and a few of the major importers like Subaru, Nissan, Mazda and Saab offer 0% financing on some cars.

Here are a few tricks to watch for as you rush into your local showroom to snap up a 0% financing deal:
• Many dealers and manufacturers have boosted the "advertising allowance" sharply so that you -- the consumer -- end up paying for the massive ad campaigns. The ad allowance used to be $100 to $200, but now is typically about $600. There is not really much you can do to negotiate that one down. A few years ago, there was a class action suit against Toyota when they raised their ad allowance from $200 to $1,200, which consumers won, but they just got coupons for Toyota products or services and didn’t make a dent in the practice.

• Dealers will try to sell you extras that you probably don’t need while you are still enthralled with the 0% financing. Some favorites: extended warranties; rustproofing; and "cosmetic protection," which supposedly protects your paint job, but you can have the same task done far cheaper on your own. Another one: the car comes with a CD player, but they will upgrade you with a CD changer for an extra charge.

• Dealers will maintain that if you take the 0% financing, you can’t bargain on the price. This is not true, and if you have a tough and experienced bargainer in your corner, like carq.com, you can get the price down and still get 0% financing, or if it is better for you, a rebate. There are still rebates of $2,500 to $3,500 available on 2002 models, though they are not advertised as much as 0% financing.

• Car companies are pushing sales much harder than leases because they don't want all these cars coming back off lease in 3 years. So, they have raised the lease "money factors" from about 4% to 5%, to 6.5% to 7%, to encourage people to buy, not lease. If you plan on getting a new car in 3 years anyway, and your mileage is not too much, leasing might still make sense for you.

• Car companies are over-advertising and under-producing certain models to be able to maintain prices, or even have dealers sell them at up to $2,500 over suggested retail. This is happening with the Honda Odyssey, BMW's Mini-Cooper and the Mercedes CLK series.

• Dealers are encouraging people to trade in their older cars with loans with higher rates for a new car, and roll the old loan into a 0% loan. But this means you are paying on your old car when you don't even have it anymore, and will raise your payments -- even though you have a 0% loan. Usually, not a good idea to take this bait.

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