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Car Ads: Reading Between the Lines

Auto dealers constantly flood the media with ads in an attempt to lure customers to their showrooms. Since most people simply do not have the cash to buy a car outright, many car dealers resort to advertising the vehicle financing information along with the cars they wish to sell. While some of these deals may work for you, many of them can end up costing you extra in the long run. This article explores some of the most common car ad claims and explains what they really mean.

"Zero Money Down! Zero Percent Financing!"

These kinds of claims seem to promise you a car in exchange for no down payment and a non-existent interest rate. However, what you don't pay up front will likely come back to haunt you in the form of higher interest payments later on. Zero percent financing is usually only available if you have a sterling credit rating, and even then, it will usually only last for a few months. After that, the interest rate may skyrocket above one you may have paid without the promotion.

This problem is compounded if you choose to pay no money down, because you'll pay interest on more of the car's purchase price. Be sure to carefully review any loan documents you sign. In particular, look for the "capitalized cost," which is the expected total cost of payment after the car loan is repaid. Compare that number with estimates from other banks or credit unions. It may turn out that you'll spend less overall if you opt for a deal with fewer gimmicks.

"Buy It Now for $200 per Month! Bad Credit or No Credit Accepted!"

Again, these claims will likely mean higher interest rates for you or a longer payment period. Lenders can alter loan terms so that monthly payments are set at attractively low amounts, but this means that the loan is drawn out over a longer period of time. Similarly, dealerships that offer financing to buyers with bad or no credit will charge a higher interest rate as the price for taking on a "risky" borrower. You may still be able to take advantage of these deals by comparing the capitalized cost of the vehicle under several different financing plans. Also, check if there are any penalty fees for repaying the loan early. If you're able to pay off your car loan within the first few months, you can avoid paying the bulk of the finance charges.

"We'll Pay You $5000 for Your Clunker! We'll Pay What You Owe on Your Car!"

This deal is alluring because it promises you a new car and offers a cost-effective solution for getting rid of your old car. However, instead of simply deducting the cost of your trade in from the cost of your new car, the dealer may cover the difference between the worth of your car and whatever they "paid" you for it and add it to the price of the car you're buying.

For example, suppose a local dealership offers to give you $5000 toward a new car if you trade in your vehicle. Your current car is really only worth $1000. You want to buy a car worth $20,000. Under normal circumstances, the dealership will appraise your car at $1000, and then offer you the new car for $19,000 plus the trade in. However, since the dealership has this promotion, they might increase the starting price of the new car to $25,000 so that you end up paying $20,000.

The best way to make sure you don't lose money on these kinds of promotions is to look up the worth of your car, as well as the car you want to buy, on sites like Kelly Blue Book, Edmunds, or the National Auto Dealers Association's buyers' guide. You can then negotiate a fair price for both vehicles regardless of whether the promotion is running or not.

"Buy It for Below Invoice Price!"

These ads imply that you'll buy a car for less than the dealership paid and certainly well below consumer prices. However, no dealership plans on taking a loss on any of their stock. The dealer might get a manufacturer's rebate or some other incentive from the manufacturer for selling the car. Again, be sure to accurately price out your car so that you know whether you're actually getting the best possible price.

For more information, see FindLaw's sections on Lemon Law Basics and Auto Dealer Fraud.

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