Car manufacturers offer special sales incentives every month on particular vehicle makes, models, and styles. Incentives vary from month to month.

Incentives come in the form of direct-to-customer rebates, special lease deals, and low-interest loans, including 0% APR loan deals. See Best Car Deals for current new-car incentives, including 0% loans.

Zero percent financing, when offered, means that the customer pays no interest or finance charges on his car loan. This saves money. Monthly payments are smaller and total costs are reduced.

Calculating payments for a zero percent loan is easy. Simply divide the cost of the car by the number of months in the loan. Non-zero-percent loans are much more difficult to calculate and require a car loan calculator.

Are 0% loans good deals?

Maybe.

Although we’ve discussed this topic previously (see Lease vs Buy), there is one aspect that we haven’t discussed and continue to hear questions about.

The question is essentially this: “If a car dealer is offering a special promotional lease deal, a purchase rebate, and a low interest loan on the car I want, which one is the best deal?”

The short answer to this question is that the lease deal will nearly always be better — and it’s not simply because monthly payments are less. If the lease deal is one that is being offered by the car manufacturer, the company has usually applied a price discount, a low money factor (finance rate), and a high lease-end residual value. The combination of all these things makes for an attractive low monthly payment. Customers are not able to negotiate these kinds of deals for themselves  because a dealer only controls one of those three things — price.

Who needs a co-signer for a car loan? How does it work?

New or first-time car buyers are often surprised at being turned down for a car loan because they have no credit history, which unfortunately has about the same effect as having bad credit. Getting a co-signer might be the answer.

Lenders want to see that a borrower has a good record with previous loans and credit cards. Without a history of credit, a borrower represents a risk to lenders. If they don’t know a borrower’s history, they take the low road and assume the worst.

It’s a familiar “catch-22″ situation in that you can’t get a loan to establish credit without already having credit. So what is the answer?

What is the answer?

The most common solution is to have someone “co-sign” your loan contract. Typically, it’s family member who has a good credit score. A co-signer plays no part in the loan unless the primary borrower fails to make payments. In that case, the loan company would have the right to seek payment from the co-signer.

Buy-here-pay-here car dealers provide auto loans to people with bad credit.

Most car dealers do not directly finance loans on cars they sell. They work with outside banks and finance companies to provide loans for their customers. It’s up to those banks and finance companies, not the dealer, to approve and provide customers car loans.

However, a different breed of used car dealer, called  ”buy-here-pay-here” dealers,  do provide their own financing without an outside bank or loan company. They primarily function to sell used cars to people who have bad credit and cannot get approved for loans from conventional sources.

Buy-here-pay-here (BHPH) dealers can be recognized by their promotional ads or storefront signs. They use the terms “easy finance” or “no credit checks” or “we finance anybody” or “in-house financing” or “fast loan approval” or “we approve you regardless of your credit.”  They are sometimes called “tote the note” dealers.

As this is being written, this year, 2011, has become the best time to buy a new car in years. And 2012 looks to be even better.

In normal years, we would tell you that the best time to buy a car is when sales are slow at the end of the month, end or the year, or during vacation season. We would tell you that you might still have to negotiate your prices because dealers aren’t just going to give you a good deal because they like you.

BUT……..things are much different now. Sales have been slow for over a year and are still slow right now. As a result, we are now seeing some of the biggest and best car incentives on new cars that we’ve seen in years. Nearly every car manufacturer is now offering a combination of large factory-to-customer rebates, low-interest loan deals, 0% APR loans (even on long 72 month loans), special lease deals, free maintenance, and “secret” factory-to-dealer rebates that dealers usually give to customers.

Why has 2011 become such a good time to buy a car?

Figuring car payments is easy if you have the right calculator — it’s not easy math otherwise

Car payment calculation is not simple math. It requires a rather complex business math formula that is not easily done by hand and most people are not capable, or not willing, to take it on. It’s not as simple as dividing loan amount by the number of months in the loan. Finance charges (interest), which change every month, must be accounted for.

It’s much easier to use a hand-held business calculator, such as the HP 12c or HP 17b, or, even better, use an easy online auto loan calculator which does the math for you.

To use a car loan calculator, you must know the amount being financed, the number of months you want to finance, and the interest rate. You’ll also need to know the down payment amount, if any, and the value of your trade-in vehicle, if any. You also need to know the sales tax rate that applies to your home location, not where you buy your car.

Is it possible to sell a car if you are still making loan payments and the loan is not yet paid off?

This is a very common question with car buyers and owners.

The answer is yes, you can sell the car, but you must get enough money in the sale to pay off your loan, so that your bank can give you a “clear” title to give to the new buyer. This is where problems often arise. Let’s see how.

If you are upside down

If you are still paying on your loan, you still have an outstanding balance, which might be more than your car is actually worth. This means you are “upside down” and would need additional cash, after the sale, to fully pay off your loan. Loan companies want to be paid in full immediately after the sale. They won’t allow you to continue to make payments on a car you no longer have.

A Car Loan Story

David, 17, recently graduated from high school, landed a good paying job, and wanted to buy a new car.

His thought was that he would go to his neighborhood Ford dealer where he had been admiring a bright red Focus model that he felt he could afford, and arrange for a convenient loan to pay for it. He could easily get approved for the loan because his father knows the owner of the dealership. 

The car cost $12,000 with discounts and rebates. He thought a 5 year (60 months) loan would be about right because he figured payments to be $200 a month ($12,000 divided by 60 months), which he could easily afford.

David was wrong — in many ways. Let’s see why.

How much down payment do I need for my car loan?

Until relatively recent times, it was standard for car dealers and finance companies to require at least 20% down payment on the purchase of a car. It was for a good reason.

Because cars depreciate in value from the moment they are driven off a dealer’s lot, a down payment helps offset that rapid decrease in value, which may keep the loan from becoming “upside down.”  It also protects the loan company or bank because, if they have to repossess the vehicle, they have a smaller risk of losing money.

Things are different now
Auto manufacturers and dealers are now very competitive and business must be fought for. They are willing to take risks that were unheard of just a few years ago. In many cases, down payment requirements have been reduced or eliminated altogether, primarily for customers with good credit.

If you still owe more on your loan than your car is worth, you are upside down.

You may still be able to buy another car if you are upside down on your previous loan.

There are two ways to go about it.

One way to buy with an upside down loan
You could sell your old car but you will have to add extra cash to fully pay off your old loan. You’ll need to pay off your loan so that you can give a clear title to your buyer. However, coming up with extra cash might be a problem, especially if you are upside down by a large amount. For many people, this solution is not possible.

Let’s look at some other ways.

How do I buy a car from an individual private seller — not a dealer?

When you buy a car from an individual, you pay with cash, a money order, or a bank cashiers check. The money can come from savings, a checking account, a family loan, or a loan from a bank or financial company. Most sellers do not like personal checks.

Buyers sometimes expect a private seller to “take payments” but any smart seller will not agree to such a plan. It is too risky. As a buyer, it’s better to get your own loan.

Your First Car – Making Your Decision

Most of us get our first car as teenagers. It’s the car we’ll always remember.

Let’s take a look at some of the important questions you’ll want to consider when deciding about what you’ll buy as your first car, how you’ll pay for it, and how to go about the purchase.

How much can you spend?

If cost is not important and you can choose practically any car you want, we’ll get to you later. However, most teens have restrictions on how much they can spend. It might be that parents are buying and have set a price limit, or that you have your own budget and limited income.

Is it possible to get a car loan and buy a car with no credit?

The answer? Yes, under some conditions. Let’s explain.

It is a common situation, especially with young people who have never had a loan, never had credit cards, or never borrowed money for a car. Without a history of prior loans and payments, there is no credit history and no credit score, which is the number that represents credit rating.

In fact it is not quite sufficient to simply have a good credit score to get a car loan — or any loan. You may also need to have an established steady income (a job) and no excessive debts. You should have no recent bankruptcies or auto repossessions, which you wouldn’t be likely to have anyway if you have no credit.

So how is it possible to buy a car with a loan when you have no credit record and no credit score?