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Monday, November 12, 2001 - Page updated at 12:00 AM

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Zero-percent financing: Is it time to buy a new car?

Special to The Seattle Times

Those 0-percent auto-financing deals are bringing shoppers into car dealerships, but that doesn't necessarily mean they're getting a good deal.

If you're looking to buy a car and take advantage of one of those financing deals, do your homework first to make sure you get a good deal and stay within your budget.

Before you set foot on a car lot, know how much you can afford to spend, said Randy Sobel, owner of Sobel & Associates in University Place, Pierce County, which trains auto salespeople in the United States and Canada. Then you'll be in control of the purchase.

"Make the salesperson sit down and write down (your) needs, like number of doors, automatic, whether (you) need to haul kids," Sobel said. "If you do your homework, and you have your budget, and you demand that the dealer shows you vehicles within your budget, you're going to get a good deal."

Sobel's definition of a good deal is when a customer gets everything he wants within his budget.

The big three American automakers made a splash after the Sept. 11 terrorist bombings when they announced 0-percent financing on most of their 2001 and 2002 vehicles. Other automakers — such as Toyota, Suzuki and Mitsubishi — later offered their own incentives, but on a more limited basis.

Industry experts say they've never seen such simple and sweeping incentives offered by so many car makers.

"You can lock in 0-percent interest rates for up to 60 months now," Sobel said. "That's the longest term that I've heard of. That's pretty good."

The deals from U.S. automakers are set to expire next week — GM on Nov. 18, Chrysler on Nov. 19, and Ford on Nov. 20.

Mitsubishi's offer on the six models it sells in the United States runs through Nov. 30, and Toyota's offer on Corollas, 4Runners and Tundras runs through Dec. 3. For Suzuki models, 0-percent financing runs through Jan. 2.

That means car shoppers who are considering buying a new car in the near future should consider shopping around now, Sobel said. Inventories — especially of 2001 vehicles — have been rapidly depleted, and once the economy picks up, prices will increase and higher interest rates will reappear.

Most of the advertised no-interest financing applies to 36-month loans, but some applies to 48- and 60-month loans. Some manufacturers are offering interest rates of 1 to 4 percent on the longer-term loans. Even so, these deals are better than 0-percent deals of the past, Sobel said.

"Usually there's a lot of hidden expenses to it," he said. "Most are attached to a lease, or very short term, like 12 or 24 months, and have requirements like certain down payments, and most people can't afford those monthly payments."

That's prompting some owners of 1- to 2-year-old vehicles with loans at 6 to 8 percent interest to also consider whether they can get a better deal by trading in their old car for a newer one with 0-percent financing. Again, they'll have to figure out what their monthly payments would be on a 36-month loan to see if they can afford them and decide whether it's the best deal for them.

"It's something every purchaser must settle for themselves: What is the best deal for me?" said Jack Teahen, senior editor with Automotive News in Detroit.

The interest savings can be significant. On a $20,000 car, buyers with no down payment can save $4,800, or $80 a month, on a five-year loan.

Some buyers have chosen to get a more expensive car with the savings, while others opt for the lower car payments, said Bob Mikolasy, sales manager with Lee Johnson Chevrolet in Kirkland.

Buyers who can afford to pay cash are instead choosing to finance their cars and leave their money to earn interest.

Teahen said car makers are paying so consumers and dealers can benefit.

"It's not such a good deal for Ford, Chrysler and GM because they're losing all this finance income, and the finance arms of those companies are very, very important profit centers for all three of them," he said. "Then why do it? To sell cars, to move them out."

That's what has happened: GM, Ford and Toyota all reported increased sales for October. Even dealers that aren't offering 0-percent financing deals saw a sales increase last month.

"Last month was a record month because there were more people in the marketplace looking for cars," said Cline Davis, general manager of Lexus of Tacoma and Jaguar of Tacoma. "The 0-percent interest rate forced people into the marketplace, and they went out and went shopping, and that's a great thing."

Free-lance writer Cynthia Flash covers business and technology. Reach her at cynthia@flashmediaservices.com.

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