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.

Zero percent loans are actually good deals but if the car company is also offering a large rebate (over $2000) on the car you want, the rebate is usually a better deal. The rebate is also better if you are short on down payment money because it acts as a down payment. Of course, you can’t take the rebate and the 0% loan — you must select one or the other, but not both.

Another reason you might not want to select the 0% APR loan is that it requires a very high credit score to “qualify.” Therefore, before you go to a dealer to accept a special low-interest or zero-interest loan deal, make sure you know your credit score in advance. You can get your credit score, free, at online services such as FreeCreditScore.comwhere you see your most recent credit score instantly with a simple signup.

Again, you can see car company incentives, including 0% APR car loans, at the Best Car Deals web site.

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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.

By contrast, a manufacturer-to-customer rebate is essentially a price discount but doesn’t affect loan interest rate (assuming the customer is not paying cash). In fact, if a manufacturer is offer both a rebate and a low-interest (or 0%) loan rate, customers must select one or the other, but not both. A rebate is the best of the two if the rebate is large (over $2000) or the customer is short on down payment cash. A rebate acts as a down payment and reduces monthly payment amount.

A low-interest loan — or zero percent APR loan — is usually the least attractive of all the three options we’ve mentioned. Although it promises to create low monthly payments, a large rebate can do it better. And a special lease deal can do it even better yet.

Therefore, the next time you are confronted with a decision about whether it is better to lease or buy, and dealers are offering special manufacturer incentives, leasing will nearly always be the best choice — assuming you understand how leasing works and how to know if you are a good leasing candidate. See LeaseGuide.com for more details.

For information about current car company incentives, see Best Car Deals.

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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.

A co-signer does not share ownership of your vehicle. If you pay off your loan on time and without problems, the co-signer has no further role, rights, or responsiblities. Their job is finished.

Even if you default (fail to pay) on your loan and the co-signer has to step in and make payments, he/she still has no owership rights. The car would still be in your name. Many people who co-sign do not understand this important point.

Another point that is important for co-signers to understand is that a co-signed loan or lease shows up on both the borrower’s credit report and the co-signer’s as a financial obligation or debt. This may affect the co-signer’s ability to get a new loan or lease for themselves if they are already close to being over-borrowed. It increases their “debt load” which is a factor that is considered when one applies for new credit. Both you and your co-signer should know your credit score before you apply for a car loan. You can get your most recent credit score online at FreeCreditScore.com.

However, on the postive side, if you pay off your loan with no problems, both you and the co-signer benefit from the good credit report. Both you and the co-signer will improve your credit scores. This makes having a co-signer a great way for someone with no credit to begin building a good credit history.

Selecting a co-signer

You should take care in selecting a co-signer. Since approval of your loan will depend on their credit worthiness, the person should have a strong and healthy credit history, a steady source of income, and not have excessive debt. For most new car buyers, this will probably be a close family member.

If you have already shown a history of financial irresponsibility, you may have difficulty finding someone who is willing to assume responsibility for your new obligations. Like the banks or loan companies, your potential co-signers may not want to take on the added responsibility and credit debt load. If the co-signer is not able to take over payment when the primary borrower defaults, both the borrower’s and the co-signer’s credit score are damaged.

If you can’t find a co-signer

If you can’t find someone who will co-sign for you, you have few other options. You may have to work out your transportation needs another way while you save enough money to get started with an inexpensive used car, while building your credit history so that you won’t need a co-signer the next time. Get a couple of credit cards or department store cards, use them often, and pay them off each month. You can then watch your credit score improve with a monitoring service such as FreeCreditScore.com.

You could also borrow cash from friends or family, although this method doesnhelp you build a good credit history. In many cases, you may not need the entire amount to buy your car. Often, a large down payment will allow you get a loan even with no credit or bad credit. A smaller loan presents less risk to a lender, and could allow you to be approved.

You could also try a used car dealer who specializes in working with people with bad credit, such as Drivetime.com. They have 78 locations around the country and offer a wide selection of used cars. This type of dealer its their own loans, which means it won’t help — or hurt — your credit.

Summary

Getting a co-signer is a great way to start building your own credit history. If you make your payments on time, don’t skip payments, and don’t default on your loan, you’ll be in great shape for your next loan — without a co-signer.

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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.

How do buy-here-pay-here dealers work?
BHPH dealers typically sell older used cars for higher-than-market prices. They may ask for a down payment that essentially covers their investment in the car. Then the customer pays off the rest of the amount with a high-interest loan, which is the dealer’s profit.  There is no credit check because the interest rate charged is the highest allowed by the usury laws in that state.

The loan might be divided into 12-18 months of payments that are set up on a strict weekly or bi-weekly schedule. In many cases, the payments must be made at the dealership in cash or money-order. Personal checks are often not accepted.

Many BHPH dealers use special devices on the cars to make sure that customers pay on time and don’t skip town. One device is a starter interrupter. If a customer is late with one payment by even a day, the car will not start, and cannot be reenabled until the payment is made and a special code is punched into the device. If a payment is missed (late by more than a couple of days), the car will be immediately repossessed — no 30 day grace period. A GPS locator device hidden on the car tells the dealer where the car can be found.

If a car is repossessed, it is usually placed back on the sales lot to be sold to the next customer. BHPH dealers normally do not report repossessions to credit agencies. In some cases, a repossessed car might be sold at wholesale auction and the customer billed for the balance of his loan. This can happen if the car has been damaged or wrecked.

Should you use a buy-here-pay-here dealer?
Buying a car from a buy-here-pay-here dealer is an expensive option, but if it is your only option, and you know how it works, then you can use it.

Make your loan as short as possible to reduce the effects of the high interest rate. Have the car inspected by a qualified mechanic before you buy because such cars are sold “as-is” without warranties or guarantees. The dealer is not obligated to fix problems after the sale. Check out the dealer at your local Better Business Bureau (find their web site or call them on the phone).

Don’t expect your credit to improve if you make all your payments on time. Just as BHPH dealers don’t check your credit when you buy, they also do not report your good (or bad) payment record to the credit agencies. Unless your credit score improves for other reasons, you’ll end your loan with the same bad credit as when you started.

Summary
In summary, buy-here-pay-here dealers exist for a reason: to sell cars to people who have bad credit or no credit and are not able to buy a car any other way. On the other hand, they are often viewed as predatory, taking advantage of people’s misfortune with high prices and maximum-allowed interest rates.

You may be able to get a better deal from conventional discount used car dealers in your area. You can get free prices quotes from these dealers from the UsedCars.com web site. These dealers may also be able to find you a loan source.

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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?

For a number of reasons.

First, the economy seems to be improving, if every so slowly, and car makers and dealers are anxious to give things a little push. They are offering attractive incentives as a way of convincing potential buyers to take action.

Second, even though there are people buying new cars, the market is smaller than a few years ago. This means there’s fewer cars to be sold and the competition among dealers and car makers is tremendous — to the benefit of automobile consumers.

This is a good time to buy because many of the deals are the about as good as they can possibly be. You can’t get lower than zero percent interest on a loan. You can’t get lower than a manufacturer’s cost to build a car and expect them to stay in business. You can’t much better on special car lease deals that give you a deeply discounted price, combined with a low money factor and high residual. Some even kick in free scheduled maintenance for a couple of years.

Another factor creating the outstanding car-buying opportunities right now is the “Toyota Situation.” Toyota’s unfortunate problems and Japanese earthquakes have caused a big slowdown in Toyota car sales. Most other car makers have tried to capitalize on the situation by offering some very attractive incentives. It’s like a feeding frenzy. Now Totoya, who is solving their problems, is offering some of the best incentives in their entire history in attempting to restore customer confidence and recover sales.

If you are looking for 0% APR loan deals, nearly every manufacturer has them on at lease some of their models and styles. Even if 0% is not available, other very low-interest loans are being offered.  Furthermore, the deals are being offered even on long-term loans, which has been rare until now. You might already know that you’ll need a good credit score to get these 0% APR deals. If you don’t know your latest credit score, you should. You can get your free credit score from FreeCreditScore.com that you can view instantly with a quick signup.

If you’re looking for great lease deals, Honda and Toyota come to mind. In fact, nearly all non-American brands have special car lease deals now. American brands (Chrysler, Ford, GM) haven’t quite come back to leasing after losing so much money on leases in the last few years.

Big rebates, however, are available on many brands, including American brands, and especially on leftover 2009 vehicles. Chrysler, Ford, and GM rebates are very attractive, as are those from Hyundai/Kia, Mazda, Nissan, and Mitsubishi. See Best Car Deals for more details on current new-car incentives and deals.

So if you are in the market for a new car and looking for the best time to buy your new car, NOW is a good time to buy. It might get a little better later in the year — and maybe not.

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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.

How Car Payments Work

It’s a fact of life. Anytime you borrow money for a car, a house, or for credit card purchases, the lender wants you to pay an extra amount (interest) for your use of his money. The more money you use (borrow), and the longer your payoff term, the more you pay.

The way in which car loan payments are calculated sets a fixed monthly payment figure that includes two parts: 1) a part that repays some of the principal ( the amount you borrow), and 2) a part that pays interest (finance charges) on your outstanding balance.

Since your loan balance (principal) decreases with each monthly payment, the amount of interest in your payment also decreases and the amount going towards your loan balance increases. 

This means that in the early months of your loan, you pay a lot of interest and less principal. As you move toward the end of your loan, you pay less interest and more principal. In other words, you pay off your loan faster at the end than at the beginning. 

No two month’s payments are exactly the same in the amounts of the two parts, although the total payment is always the same (except for possibly the last payment which is usually less).

One possible problem with the way that car loans are structured is that the small amount of principal being paid in the beginning of the loan term may not pay the loan balance down as fast as the value of the vehicle depreciates.

This means you may be “upside down” — you owe more on your loan than your car is worth — during much of your loan term, which can be a problem if you decide to sell or trade before your loan is paid off, or nearly paid off. It can also be a problem if your car is stolen or totaled in an accident. Insurance companies pay you what the car is worth, not the amount you still owe on your loan. 

If you decide on a long-term loan (more than 48 months), or have a high interest rate, or make little or no down payment, or roll over negative equity from a previous car loan, you are almost assured of being upside down for most of your new loan term.

Some banks and loan companies allow you to make extra payments or pay more each month toward principle, which ends your loan sooner, lowers total finance costs, and reduces the chance of being upside down. Contact your bank or loan company to make arrangements.

The interest rate that you pay on your car loan depends on your most current credit score. If you don’t know your credit score, you should get it before you go shopping for a car or apply for a car loan. You can get your most recent credit score online at FreeCreditScore.com.

Calculating car loan payments is easy if you use an online car loan calculator.

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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.

Be sure not to sell your car without know if you are upside down and knowing exactly how you still owe. That way you don’t get into the problem of selling your car and finding out that the money doesn’t cover your outstanding loan balance.

Even if you intend to sell your car, possibly because you can’t afford the high payments, and buy a cheaper car, you still have to pay off your old loan before you buy another car. And you can’t simply trade cars thinking it might lower your loan balance and payments.

If you are not upside down

If your loan balance is less than the outstanding balance on your loan, then there’s no problem. You get the money from the buyer, use part of the money to pay off your loan and get the title, and put the remainder of the money in your pocket — possibly as part of a down payment on another car.

Check with your bank or loan company to determine your current outstanding balance or “payoff.”

How does it work?

How do you sell a car that you are still have a loan on?

Here are the basic steps: Sell the car, use the money to pay off your car loan, get the car’s “clean” title from loan company or bank, give title to buyer, and buyer gets new title and tags from the local DMV office. Depending on the state, the buyer may pay sales tax.

Generally, a smart buyer will insist that he go with you to your bank so that he can write his check directly to the bank, have you add your additional cash if you are upside down, get the title immediately, have you sign over the title to him right then and there, and give him the car keys. That way, there are no delays and no mess. Nice and clean and quick.

Summary

So if you want to sell your car when you are still making payments, yes, it can be done. However, if you still owe more than your car is worth, it is much more difficult — and sometimes impossible.

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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.

So what’s wrong with David’s thinking?

Age Requirement
First, he must be at least 18 years old  to be legally responsible to sign contracts, including sales contracts and car loan agreements. He would have to show proof of age before signing.

Loan Approval
Second, ignoring the age problem for a moment, car dealers don’t approve loans or make loans, so it doesn’t matter that David’s dad knows the owner of the dealership. Dealers work with banks and finance companies to arrange loans for customers. It’s the bank or finance company who approves loan applications and grants loans. Dealers sometimes “screen” customers as preliminary way to weed out customers who have impossible credit. 

Credit History
Next, having recently graduated and just getting a new job, David does not have an established credit history. He has never had a credit card, department store account, or a loan. The fact that he has a new job doesn’t help if he’s been working less than 6 months.

If he was old enough (18 or older, see above), he could get a family member to co-sign the loan agreement, which would help him get approved. A co-signer would be responsible only if David fails to pay on his loan.

But since David is not yet 18, he can either wait until he becomes of legal age, or he could have his parents buy a car in their name and add him to their insurance policy as the regular driver.

Calculating Payments
Finally, David doesn’t understand how car loan payments are calculated. It’s not a simple matter of dividing the car’s cost by the number of months in the loan.

In fact, it’s a rather complex business math calculation that takes into account a monthly finance charge (interest), that will significantly increase his total cost, especially for loans 60 months long that have higher interest rates than shorter loans. The calculation must be performed with a business calculator or online auto loan calculator.

Length of Loan
Furthermore, even if David were to be able to get the car loan, a 60-month loan is too long for a teenager  who will become tired of his car long before 5 years is up. More than likely, his tastes will change and he’ll get future pay raises that will allow him to afford (want) better, more expensive cars. 

Unfortunately, with such a long-term loan, he’ll be “upside down” for most of the term of the loan, making it financially troublesome to try to sell or trade before the loan is paid off. He may be tempted to trade and have the dealer roll his “negative equity” into a new car, which is not usually a good thing to do.

Other Costs
Further still, we wonder if David has considered the other costs of owning and driving a car. A car’s purchase cost is only a part of the overall cost of ownership. As a young male driver, his monthly insurance costs could easily exceed his loan payment amount. Then there’s gas, maintenance, repairs, tires, taxes, and license fees.

Summary
Unless someone buys a car for David, he should wait until he is at least 18 years old, has a stable income, has an established credit history, and understands how car buying and financing works.

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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.

Even if you have good credit, accepting a “no down payment” deal is not wise. Because your vehicle will depreciate in value faster than your monthly payments pay down your loan, you will be upside down for most of your loan term.

So, what is the problem with being upside down?
First, if you decide to sell or trade your vehicle before your loan is paid off, or nearly paid off, you’ll get a nasty surprise. You’ll find that you still owe more on your loan than your vehicle is worth. Maybe thousands of dollars more. You’ll have to find the extra money to pay off your loan.

Second, if your car is stolen or totaled in an accident, your insurance pays only what the car is worth, not what you still owe on your loan, which again, could be thousands of dollars difference. In order to pay off your loan after the accident, you must come up with the additional cash on your own.

How much down payment?
A down payment not only helps you avoid the problems of being upside down, but it also serves to lower your monthly payment. The amount by which it reduces your payment depends on the amount of the loan, the amount of the down payment, the length (term) of the loan, and the interest rate. You can use an auto loan calculator to play around with the numbers to find out the effect of different down payment amounts.

A good rule of thumb is 20% for a down payment. You can take advantage of manufacturers’ rebates, which can be used as a down payment. If you can’t do 20 percent,  do the best you can.

In some cases, especially if you have poor credit, the bank or finance company will dictate how much down payment you must make to get a car loan from them. It’s usually not negotiable. If it’s more than you can pay, try other banks, credit unions, or loan companies.

If you have poor credit, you might consider looking for your car at a dealer such as Drivetime.com, who specializes in working with buyers who have less-than-perfect credit. They have dealerships all over the country. If you don’t know your latest credit score, you should know it before going car shopping. You can get your most recent credit score online at FreeCreditScore.com. It’s free with a simple signup.

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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.

Another way to buy if you are upside down
You can trade your old car at a dealer and let the dealer pay off the old loan. Sounds easy, but there’s a catch. If your old car is not worth as much as the amount remaining on your old loan, the dealer takes the difference and adds it to the price of your new car. If you are upside down by a large amount, this can significantly raise the cost of your new car. In some cases, a dealer will not allow the entire amount to be rolled into a new loan, which means you must come up with some cash as a down payment.

When you roll part of an old loan into a new loan, it usually puts you right back into an upside down situation, which is usually worse than your old situation. It is a vicious cycle that you would be best to avoid.

The best way to get out of an upside down loan is to simply keep your old car, keep making payments, until you are no longer upside down. Then, you have the option to do anything you want.

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