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 The truth about 0% auto financing
  How to bail out of an upside down car loan
By the EchoBay Loans Expert
 The truth about 0% auto financing
Dear EchoBay Expert: The Pontiac dealer in my town is advertising 36 month, 0% auto financing for new car loans. It seems like I'd be getting something for nothing. What's the catch with these loans?

Dear Loyal Reader: We're talking about car dealerships; why would there be a catch? Okay, back to reality… The first catch is that a very small percentage of people will actually qualify for these loans. Dealerships are smart.

Advertising 0% auto financing is a great way to get car buyers into the showroom, but then many buyers are surprised when they find out that their credit scores or their employment history or income amounts just aren't good enough to qualify them for that offer. Of course, the dealer has a higher-interest loan that he's more than happy to slide you into.

Then there's also the fact that you can be pretty sure that the 0% offer doesn't apply to all of the cars on the lot; rather it probably just applies to the models that are less popular and harder to sell. If you are one of the few who have a spotless credit history and you want the model that the financing is being offered on, you'll want to make sure you're not giving up a rebate that could be put to better use and saving you more money.

Oftentimes if manufacturers are offering a rebate at the same time that they're offering low or no-interest financing, it's an either/or situation and you can't have both. If you're sure that the 0-interest financing is the way you want to go, be sure you can afford the monthly payments.

Since the payments are usually spread out over just 36 months, they can be quite high, even at 0-percent interest. For instance, a loan of $18,000 paid out over 36 months means monthly payments of $500 a month.

So while it's not impossible to take advantage of the offer that your Pontiac dealership is proposing, you'll want to pay close attention to the above so you're armed with knowledge when you enter the dealership showroom.

 How to bail out of an upside down car loan
Dear EchoBay Expert: The loan on my Ford Mustang is two years old and I'm still upside down in it. I want to buy the new Mustang model this year but don't want to keep creating bigger payments. How can I get out of my upside down car loan and how can I prevent the same thing from happening in my new loan? Thanks for answering.

Dear Loyal Reader: Getting out of an upside down car loan can be a tricky endeavor. If you have financed the car at a high interest rate, you may be able to refinance at a lower rate and over time, right yourself in the loan. Of course, this would entail delaying the purchase of the new car. If you must get a new car now, sell the car yourself rather than trading it in.

You will almost always get more for your car when you sell it yourself. When you buy your new car, there are a few tips you can follow to make sure you don't end up in another upside down car loan.

First, try to put down at least 20% when you buy a new car. Cars can lose as much as 20% of their value as soon as you drive one off the dealers lot. If you haven't made a sizeable down payment, you could be in an upside down car loan from day one.

Second, always make sure you take out the shortest-term loan you can afford. If you drag your loan payment out more than five years, you are almost guaranteed an upside down car loan. If you must finance for more than five years to afford the car, you need to be looking at a less expensive car not a longer term.

When you do buy a new car, be sure to payoff your current car first or if you are trading your old vehicle, be sure the trade value is more than your payoff amount. You should not be rolling debt from your old vehicle into your new loan.

Finally, you can buy a used car. Because of the massive deprecation in the first year of owning a new car, buying used may be your answer. By doing this, you are buying after this depreciation has occurred. It can be difficult to get out of an upside down car loan but it is possible with a little patience.

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