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Scott Olson, Getty Images

It's one of the best-kept secrets of the car business: 0% car financing, one of the largest discounts a consumer could hope for in an entire lifetime of conspicuous consumption, remains stubbornly beyond the reach of most car buyers.

The number of 0% deals has soared this year as domestic, Asian and European car makers strive mightily to breathe life into their U.S. car sales. It is not unusual for a manufacturer to put 0% deals on more than two-thirds of its vehicles. Many of them are the equivalent of a $2,000 or $3,000 rebate.

And the very idea of 0% -- with its subtext of getting something for nothing -- lends itself to a simple yet powerful marketing message that car dealerships can promote in every medium, from cable TV to newspapers to Facebook. But, paradoxically, these deals can also squeeze out competing loans and pave the way for higher costs if a buyer isn't careful, experts say.

Hard To Get

Moreover, they aren't available to everyone. The programs exclude about 60% of the car buying public. The reason: Buyers with less than sterling credit generally do not qualify for them.

"The people who are going to take advantage of the 0% are the ones who don't need it," said Mark Dubis, a Cleveland-based dealership consultant and president of The Dubis Group. "And the ones who do need it can't qualify it."

Automakers are notoriously tight-lipped about what credit scores are needed to qualify for their best financing rates. But Michael Royce, AOL Autos contributor, former car salesman and publisher of BeatTheCarSalesman.com, estimates customers may need at least a score of 680 to 700.

Many buyers are already sitting across the desk from dealership salesperson when they find out they don't qualify. That's especially likely if they have a mediocre-to-low score and haven't bothered to check it ahead of time.

Other issues complicate the deals. For one thing, buyers tend to fall in love with cars -- not interest rates. So, once they see a dealer's inventory, the particular model they may not feature the 0% deal that attracted them to the showroom in the first place.

And if they opt for a 2011 model instead of 2010, the loan for the new 2011 often won't carry the same four- or five-year term -- if the car even features 0% financing at all. And these days, a few 2010 models feature 0% deals that are for 36 months or less. During August, for example, offers for the 2010 Kia Soul, a Mazda CX-7, or a 2010 Ford Taurus were limited to three years. Relatively few buyers want terms that short.

According to a recent Kelley Blue Book survey, 62 percent of car shoppers in the market for car loans right now are looking at financing over 48 or 60 months compared to 21 percent for 36 months.

Still, consumer finance experts like 36-month terms: they keep the total cost of a loan down.

Whatever the difficulty, buyers may be well into the buying process when they find out that 0% won't work for them. So they may take the path of least resistance and accept an alternate financing option from the dealership without much quibbling.

That could take away one of the buyer's key levers in the negotiating process: the ability to play one financing offer against another.

Hard To Walk Away

A range of psychological factors come into play at that point, Royce says. Many people have a hard time exiting a sales discussion smoothly if their original plans fall apart. So they go with the flow.

"That's whole thing about the buying process," he said. "The dealership gets you with the test drive, and if they can get you to the desk after the test drive and you are excited, you are in the process and it's very hard to walk away."

Furthermore, at that point, both the salesperson and the buyer may be inclined to shift the focus of the sales discussion to the size of the payment -- rather than the interest rate. Ultimately, that could lead them to a term as long as 72 months.

"What they should do is go for the rebate, and then go for the shortest possible term," Dubis said. "Instead, they are going for the longest term and the lowest monthly payment."

With a six-year loan, the payment will likely end up lower than it would on a shorter-term 0% deal -- but there is a downside: Without a hefty down payment, the buyer will be "upside-down," owing more than the vehicle is worth, for the entire term of the contract.

It's a nightmare scenario mirroring the housing crisis that brought the world financial system to its knees in 2008.

The continuing debt load will never seem to go away, complicating the process of buying a new car down the road. Gary Pierce of Lending Tree Autos, an online clearinghouse for car loans, said consumers' tendency to go along with the process shows up in his statistics, too. One out of 10 pre-approved Lending Tree deals doesn't survive the negotiating process in the dealership; the buyer accepts a dealership offer instead.

That's a testament to the persuasive power of the salesperson and the environment. It's also a sign that dealerships can be good sources of financing. They have long-standing relationships from a variety of lenders and can be especially helpful if a buyer has credit problems. But it may take a competing offer from a non-dealership source to lead a dealer to come up with the best possible counter-offer. "Hopefully, customers are getting a good deal in those cases, as much as we would like to be the one providing them with the loan," Pierce said.

Consumers don't normally reach that point unless they have a pre-approved offer from a bank or credit union in hand as a bargaining chip, however.

Since automakers usually offer a choice of a rebate or 0% financing, it may be best for consumers to take the rebate and use the financing they arranged themselves for the purchase. In this way, they shave thousands off the price of the vehicle and get a relatively low interest rate to boot.

"Most of the time when people crunch the numbers, you are better off getting your financing at the credit union," said David Adams, CEO of the Michigan Credit Union League. He said he has seen many credit union rates for new car loans at 4 or 5%.

So is it "game over" if buyers fail to get financing in advance? Not necessarily, Adams said. They can still turn the situation to their advantage.

While dealerships tend to steer consumers to an affiliated lender to make a higher commission on the loans, "virtually all dealerships have relationships with credit unions," he said. "So you need to be smart enough to say, 'What about a credit union option?'"

Consumers won't fare well if they blindly put their trust in advertised low-rate deals. While 0% offers can definitely save well-qualified buyers money, they basically exist for a different reason: Automakers need these deal sweeteners to sell enough cars to keep their factories humming.

Nearly every automaker, from Suzuki to General Motors, is offering them these days. Their dealers don't have it particularly easy. Amid the cutthroat competition, their profit from the actual sale of a new vehicle is razor-thin -- if it exists at all. And they make less money on the 0% financing deals than they would on their financing, Royce said.

While dealers do need to make money, consumers need to be on their toes so they aren't making an excessively generous contribution to their dealer's revenue goals.

Otherwise, they could end up paying a few thousand dollars more for their car than the next guy driving off the lot.

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    • 1 Second Ago
      • 5 Months Ago
      Buy Used Pay Cash the only way it is cost effective
      • 5 Months Ago
      wnjonesjr 1 - I think you just created the world's longest run-on sentence, and it should be submitted to the Guinness Book of Records.
      • 5 Months Ago
      I would love to see the credit score of those uninformed morons on here that label all car salesmen as scumbags and crooks! I retired after 40 years in the business and I will tell you that the salesmen who last are hard working, honest, and reliable. The men I worked with also had some of the best credit scores anywhere. I sold luxury cars and we looked at the best customers in most cases so I am not guessing!
      • 5 Months Ago
      0 is 0 and it is a great deal if you qualify. This headline is misleading. You either qualify or you do not. Just like in anything in life you make the cut or you don't! Zero is great if you have good enough credit to qualify. High School cheerleaders, Basketball players etc. not everyone makes the cut. Stop blaming corporations if YOU don't make the grade. Fair is fair! It's like saying "it will cost you money if you do not become a Doctor! Hello, not everyone makes a Doctors pay! Why is this? Many reasons for not making the cut in life. That's life!
      David S.
      • 5 Months Ago
      Not sure I agree with what the guy said about people who have the credit to get 0% generally don't need it? Come on, just because someone has great credit doesn't mean they are wealthy. No one should be penalized for good credit. Since when is being responsible frowned on?
      • 5 Months Ago
      Car salesmen are their own worst enemy. They get a customer and all they can think about is selling one car instead of selling them ALL their cars. There are a few out there that you can trust, but they failed to police their own industry and let these "super stores" rape and pillage everyone that would walk in the door. Poor bastards would be lucky to have a nickel left after being suckered with every gimmick and trick thrown at them. Would explain the scum they hire too-anyone that could fog up a mirror or not have too many felonies on their record. Just look at that show "King of Cars" that was on tv a while back, what an embarrassment for an industry. People have to be responsible also for being stupid and letting these guys survive to suck off of the unfortunate-- Buy here /Pay here, No Haggle Pricing, No money down-109 bucks a month for three years on a 20K car (do the math stupid)
      • 5 Months Ago
      One thing the article doesn't mention is the "let me check with the financing department." What the salesman is doing is going to another salesman to act as the finance department rep. As soon as he leave the office, so should you. GET UP AND GET OUT! You're about to get scammed. If the salesman says he needs to check with someone else, just tell him if he can't negotiate with you, there's no sense in continuing. One other thing, and I got burned by this one. The salesman got his "finance officer" to discuss the terms. The finance officer just started filling out the forms and handed them to me to sign. Even though my wife and I needed a newer car, what I should have done was ripped them up and walked out.
      • 5 Months Ago
      Listen up folks ! Although the writer of this article had good intentions he left out the most important equation. Whenever a dealer offers you 0 % you are forfeiting the cash rebate . In most cases its $ 4000 or 0 % . So if you think you are so smart by accepting the ZERO % you are in fact cheating yourself . Here is why thru a simple example . Borrow $ 24000 at 0 % x 60 months and you pay $ 400 a month and in effect have paid no interest . However , if you dont take the ZERO % the dealer must give you the other alternative which is $ 4000 cashback . Then assuming you had good enough credit to qualify for ZERO % you would also have the credit to qualify for credit inion rates of 2.9 % x 60 or a payment of $ 358.49 which in turn saves you $ 41.51 per month for a total savings of $ 2490.60 . In addition when you drive away from the selling dealer you will owe $ 20,000 as opposed to driving away owing $ 24000 . Come on America , aren't any of you smarter than a first grader ?
        • 5 Months Ago
        What cash rebate. Toyota is offering 0% on the plug in Prius but I haven't heard of any rebate. I would like to know.
      • 5 Months Ago
      Ok, all I'm seeing is misinformation here so let me explain a few things. 0% financing means that someone is lending you money and not charging you ************** that simple and there are no tricks involved. Flilguy- the $17.95 to $23.95 you saw was what the payment was based on how long you financed it at o%, it was not hidden fee's. For example if you borrow $10,000 at 0% for 3 years and you borrow another $10,000 for 0% you would have two different payments, they were showing you most likely 36 and 48 months at 0%. The next thing that bothered me are the "Cash is King". Whether you finance or pay cash you can get the exact same price when you buy a car from a dealership. A long time ago when you bought a car it was a hassle for the dealership to get their money so cash was better because they got their money sooner. Now adays banks can transfer the money to the dealership within a few days so there isn't the time descrepancy that their once was. In fact, dealerships make money with financing so in reality a financed deal makes the dealership more money than a cash deal does. Banks and Credit Unions will pay dealerships a couple hundred dollars (a flat) to sign up the customer with their lending institution. The price a dealership can sell a car for is determined by what it cost them to buy it, prep it for sale and the overhead to run the facility. That is it, buy for one price and sell it for more to make a profit, really simple. Rebates vs 0%. There is no yes or no answer here. If you tend to make minimum payments than 0% will save you money in the long run, if you pay your loans quickly than you need to figure out what the rebate is and how quickly you will pay off your loan to see if it makes more sense for you. I am obviously a car salesman and it really cracks me up how much misinformation is out there from consumers and website's like this one. The article quotes a guy that is incharge of credit unions saying get financing from a credit union, umm considering his check is based on people financing at credit unions it would make sense that he would recommend it. Maybe he is just such a kind person that he is trying to protect people he has never met from getting screwed over by us "car salespeople" by offering them a 0% loan that makes no banks any money and saves the customer potentially thousands off of interest charges. (By the way, the guy lied. Credit Union's are offering auto loans right now in the 3-4% range, my guess is he doesn't want some of his customers that he ripped off by charging higher rates to know what he really can offer) Just had to rant a bit. Lastly, keep in mind when all these website's have an ex carsalesman that did it for 3 or 4 months giving you your advice you are getting advice from a guy who wasn't good at what he did or he wouldn't have quit or been fired. Most importantly, he ONLY DID IT THREE OR FOUR MONTHS! Would you take advice about your health from a doctor who only did it for three months, how about a lawyer? Hopefully that makes sense, if not when you go to a dealership and get the traditional hassle's and run around next time realize that guys who write article's like this are setting you up for it by making you expect it.
        • 2 Months Ago

        There is no "free money"  Anyone who believes that is a fool.  Zero percent is a gimmick to shift the focus away from the car price itself and onto the so called great financing deal that the consumer thinks he is getting.  As long as you are willing to pay my jacked up price, I'll spot you your so called zero percent because I am making up the difference on the sale price of the car.  Remember, I'll give you favorable terms as long as you are willing to pay my price or vice versa.  Either way I win and you feel like you've won.

      • 5 Months Ago
      Hell must be full of car salesmen. They are the most dishonest bastards that ever walked the face of the earth.
      • 5 Months Ago
      Cars and trucks are crazy expensive,the average person can't afford one without going into debt for many years.Big corporations whose real concern is their bottom line have bled this country dry to satisfy their shareholders,and keep their jobs.America used to build excitement....................................
      • 5 Months Ago
      While some people might think the writer of t his article doesn't know what he's talking about; quite frankly he laid out some very good points. Working in auto financing, and consulting opened my eyes about the auto industry. It's not a new concept that the financing is the largest money maker in the dealership. Consumers need to do their homework before going to the dealership. Get pre-approved at their financial institution and know what the interest rate is. Then the consumer can go in and compare numbers and not lose focus of how much they are spending in the long run. Bottom line - the dealership will ALLWAYS make a profit on a deal, 0% or not.
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