0% financing if you pay $4 thousand more for the car? What a deal!


Browsing through the "automotive" section of my local newspaper the other day, I saw a big ad for a dealership offering "0% Financing!" on all new cars -- with an asterisk. Of course, there was an asterisk with the usual boilerplate about "credit approval required" but there was also something more interesting: a disclosure that the 0% financing deal was "in lieu of manufacturer's rebate."

Now hold on. If you have to forgo a $4 thousand rebate in order to get "0% financing", that's not 0% financing! That's $4 thousand dollar financing.

And then of course, there's the whole issue of buying a new car and the myth of 0% financing in general. As Dave Ramsey wrote in Total Money Makeover:

Myth: You can get a good deal on a new car at 0 percent interest.

Truth: A new car loses 60% of its value in the first four year; that isn't 0%.

Be extremely wary of bold-faced gimmicks in size-64 fonts followed by 5 exclamation points. For more tips on how to avoid getting taken to the cleaners next time you buy a car, check out this video.