Wheeling and Dealing

Question of the week:I'm very tempted to by all the zero percent financing offers to go ahead and get a new car. What's your opinion about those deals?
--LT from Texas

Dear LT,

You have a lot of company these days, as these deals have been in large part responsible for the substantial boost in car sales this year. We asked members of the Armchair Millionaire community your question, and heard strong opinions both for and against. Here are a couple of examples:

Stay away. "It seems like they offer you zero percent and then jack up the retail price, so I'm not really sure it's that great of a deal." --M. Tyger

Go for it. "You can't beat these deals. I got zero percent financing on a Chrysler Sebring and saved $4,000 by not buying a car with interest payments." --John L.

In my own view, zero percent financing is a great marketing tool for the dealers, but usually not such a great deal for consumers. Here are the main reasons I steer away from them:

• You're likely to pay a higher price for the car in order to get the zero percent deal.
• You can generally only get the zero percent deals if you have perfect credit. (In fact, one study showed that less than 10 percent of all car buyers who financed at their dealership received the zero percent rate.)
• The deals only apply to certain models (often the most popular ones) and only new cars.
• Many zero interest deals apply only to shorter term loans--like 24 or 36 months--making the monthly payment too high for some.

If you decide you simply must go after the zero percent offer, I suggest that you love the car, negotiate hard on the price, and walk away if they tell you that you won't qualify. And if you decide the deal isn't right for you, my checklist will guide you through your alternatives.

The Armchair Millionaire Checklist of Car Buying Options

• Pay cash. Imagine that! Yes, people do actually still put down cold hard cash for cars. Pros: You'll have your very own zero percent deal, and no debt monkey on your back. Cons: You'll have to do some serious planning ahead and saving to have the cash on hand when you want to make the buy.

• Get a loan from your bank or credit union. Pros: You can already have your financing in hand when you hit the dealership, giving you an edge in the negotiations. Cons: Your interest is not tax deductible.

• Get a home equity loan. Pros: You'll probably get a good interest rate, plus be able to deduct the interest you pay. Cons: You'll erode the equity you have in your home, and may have to pay some closing fees.

THE BOTTOM LINE: There are no hard and fast rules in the best deals for car financing. You have to sit down with your calculator and run the numbers on each one, figuring in your down payment, the term and interest rate of the loan, and the price of the car.