Auto salesWant a cheap car loan? How does free sound?

Believe it or not, more and more car buyers are being offered 0% interest loans, many with terms as long as 60 months.

Thanks to record-low interest rates, the financing arms of automakers like Toyota (TM) and Ford (F) are able to offer 0% financing to some buyers of selected models, and cheap financing to almost everyone else -- even to folks with less-than-perfect credit.

A not-so-surprising result: Auto sales in the U.S. have been on the rise.

So-So Economy Not Stopping Car Buyers

While auto sales still haven't quite recovered to the levels that were routine before the 2008 economic crisis, new car and truck sales have continued to rise, despite an economy that's still just so-so.

Through August, U.S. sales of "light vehicles" -- cars, SUVs, and pickups -- were up 19.9% over last year. Some automakers have seen even bigger gains: Volkswagen's (VLKAY) sales were up almost 37%, Chrysler's almost 26%.

In fact, the pace of new-vehicle sales is at its highest level since the U.S. government's "Cash for Clunkers" program drove a sharp (but temporary) rise in the summer of 2009.

What's driving those fat gains? Overall slow-but-sure improvements in the economy have surely helped, but cheap -- and easier -- financing has made a big difference.

Easy Credit

It's getting somewhat easier to get loans of all kinds, but the availability of auto loans is improving faster than in some other categories of financing, like mortgages. That's because auto loans tend to have a lower default rate: People who depend on their cars to get to work make an extra effort to stay current on payments.

Most of the major automakers own financing companies. And those "captive financing" operations have made low-cost loans a staple of many car companies' "incentive" offerings. Incentives, which include both cheap-financing and the "cash back" deals often advertised on TV, are typically used by car manufacturers to boost sales of slower-moving models or adjust a new model's pricing relative to its competitors.

On top of offering low-cost loans, those financing operations are often more willing than your local bank to lend to folks with less-than-perfect credit.

Sales of new vehicles to buyers with "Tier B" credit, the industry's term for those with credit scores between 650 and 679, have risen 26% this year, according to a Bloomberg report.

A Good Time to Take Advantage

Here's what it means for consumers: If you need a new car, and you're not planning on paying cash for it, the low cost of financing means that this is a good time to buy.

For instance, on a $25,000 60-month loan, the difference between a 4.5% interest rate and no interest at all is about $50 a month, or roughly $3,000 over the course of the loan.

Not all automakers are offering 0% financing, but more and more are: In addition to Toyota and Ford, Chrysler, General Motors (GM), and Nissan (NSANY) have had 0% offers on some models recently, according to Edmunds.

Of course, not everybody will qualify for 0% financing, and even the automakers that offer it are only making it available on selected models. But no matter what kind of car or truck you're buying, financing is cheaper -- and for most, easier to get -- than it has been in a long time.




At the time of publication, Motley Fool contributor John Rosevear owned shares of Ford and General Motors. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors and have recommended creating a synthetic long position in Ford.



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19 Comments

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bhardeman

Another reason people aren't defaulting on car loans as much: it's a simpler process to repossess a car than to foreclose on a home. And, you're right, car financing is up. I work at Credit Karma (that's me behind the Twitter handle) and the average auto debt of our members has increased every month since June 2012.

October 05 2012 at 2:06 PM Report abuse rate up rate down Reply
bhardeman

Another reason people aren't defaulting on car loans as much: it's a simpler process to repossess a car than to foreclose on a home. And, you're right, car financing is up. I work at Credit Karma (that's me behind the Twitter handle) and the average auto debt of our members has increased every month since June 2012.

October 05 2012 at 2:06 PM Report abuse rate up rate down Reply
jrgumshoe

I know one thing, the price of a new car has gone up a lot, unless you buy a complete strip down model. This is the new way of getting your money.

October 05 2012 at 5:35 AM Report abuse rate up rate down Reply
chevyle 33

face book not help me tell lair red nick is better crig list is better hello my away,,,,,,

October 05 2012 at 2:16 AM Report abuse +1 rate up rate down Reply
welcome butch

FOR THE PRICE OF YOUR NEW CAR YOU CAN BUY THOUSANDS OF GALLONS OF GAS ,
MY CARS ARE PAID FOR AND I WILL KEEP THEM

October 04 2012 at 7:54 PM Report abuse rate up rate down Reply
welcome butch

FOR THE PRICE OF YOUR NEW CAR YOU CAN BUY THOUSANDS OF GALLONS OF GAS ,
MY CARS ARE PAID FOR AND I WILL KEEP THEM

October 04 2012 at 7:53 PM Report abuse rate up rate down Reply
welcome butch

WE DO ALL KNOW IT IS NOT GENERAL MOTORS WITH THEIR FAILURE THE VOLT , BUY NOW DIE LATER FROMM ELECTROCUTION

October 04 2012 at 7:51 PM Report abuse rate up rate down Reply
Arius

I don't know why the previous posters think this is a lie. I got letter after letter in the mail from my credit union for a preapproved car loan at 1.99% interest. I went to the local car dealer that was offering 0% on 60 months or $3500 off and I qualified for the 0%. I went with the credit union financing for 2.49% @72 months and still got the $3500 rebate. Now I have a brand new car.
I have been using a subscription to Experian as well as CreditSesame.com and CreditKarma.com to monitor and improve my scores. When they were telling me my credit score was 792 I went for the car loan. Easiest thing I ever did.

October 04 2012 at 3:18 PM Report abuse -1 rate up rate down Reply
2 replies to Arius's comment
insanemstng

72 months on a car loan is nothing to brag about paying on a car for 6 years is just crazy!!!!!!

October 04 2012 at 3:37 PM Report abuse +1 rate up rate down Reply
2 replies to insanemstng's comment
koos458

If there is no interest, who cares?

October 04 2012 at 4:13 PM Report abuse +1 rate up rate down
insanemstng

I have never seen 0% on 72 months and the fact is your still upside down in your loan after 3 years and still have anouther 3 years to pay but thats the thinking of most people buy what they cant aford and pay over absured number of months.

October 04 2012 at 8:55 PM Report abuse rate up rate down
summerctz

You have to have what's referred to as "A Tier" credit to qualify for 0% financing. That means substantial income ( income vs debt), a sparkling clean credit record.

And 72 months (6 years), is nothing to crow about.

October 05 2012 at 6:44 AM Report abuse rate up rate down Reply
RMS

Just try qualifying for one of those zero percent loans. It's virtually impossible. You have to have the credit score AND the income AND the down payment. Not easy these days. I'll stick with my ten year old car that is dependable AND paid for.

October 04 2012 at 11:15 AM Report abuse +3 rate up rate down Reply
david

Lets see if I give up a 2000.00 rebate and take o% loan,what happened to the rebate?GEE do you think they used the money to pre pay the interest>This has been going on for years and there are people who still think they are getting free money.LOL LOL

October 04 2012 at 9:49 AM Report abuse +1 rate up rate down Reply