Low, low interest rates advertised by many automobile manufacturers -- 0% to 2.9% -- often sound too good to be true! If they sound too good to be true, they usually are! In the fine print of the ad, one learns the rate is on "selected" models or that the rate is good for only 36 months, which may make payments unaffordable--even at such low rates.

Additionally, 0% financing is being phased out by manufactures but historically:

• Only 9% of car and truck buyers actually get 0% financing according to CNW Marketing Research of Bandon, OR. Most buyers are told their credit rating isn't good enough. Only buyers with the very best credit rating actually qualify.
• Many of the 9% of buyers who do qualify end up paying more for the vehicle. Only 18% of these people haggle for the best sale price, whereas 70% of all other buyers do haggle
• 0% financing offers sound so good potential buyers don't compare it to a lower sale price on the vehicle coupled with a rebate offer.
• Here are some of the guidelines to determine if the interest savings exceed the rebate. If they do, take the rebate. The amounts indicate total interest paid over the life of the loan at 5% interest: (these numbers are rounded off)

To determine other amounts borrowed just take the "total interest paid" amount times 2 for $20,000 or 3 for $30,000 or 2.1 for $21,000 etc.

There is another practice used by some financing institutions (never your credit union) you should understand. It's called the Rule of 78s. This is a loan agreement that contains a legitimate (but not very fair) prepayment penalty. And you will never be told about it when you sign the contract. This rule gets its name by adding the numbers 1 through 12 (for the number of months in a year), to get 78. With a one-year loan, you will pay 12/78 of the year's interest in the first month, 11/78 the second month and so forth.

This becomes particularly ominous on a 48 or 60 month loan. During the first year of this loan you will have paid most of the interest due over the life of the loan. If you decide to pay the loan off early or refinance the loan at a lower rate, you have lost a great deal of money. The net effect of this type of auto loan is really a higher interest rate if it is figured on a simple interest basis.

Credit unions only use the simple interest rate APR to calculate consumer loan rates. Therefore, credit union rates may sound higher, but are generally lower!

To assist you in determining the price the dealer pays for a vehicle, the rebates available and what price you should pay, you may call ABCD year round at (301) 261-2227.