NEW YORK (CNN/Money) -
You've got lots of choices to make when you buy a car. Red or white? Leather or cloth interior? Four-wheel drive or two? Most are just a matter of personal preference. But deciding which incentive to take, a low (or zero percent) APR or a manufacturer's rebate...Now, that we can help you with.
Zero interest loans have been popular since last fall, but just to make the offer sweeter, automakers are increasingly offering them with longer-than-usual repayment terms -- up to 60 months, instead of a more typical 36 or 48. Usually, you can choose between the zero financing offer or take a sizeable cash rebate upfront, between $1,000 and $4,000, said Bob Brisco, CEO of CarsDirect.com.
Sure, 0 percent means you get the car for sticker price and not a penny more. But if you have to pay it back quickly, or your down payment is small, the monthly payments get quite hefty even without the interest.
And rebates add to your down payment, shrinking the amount you have to borrow. And ordinary interest rates are pretty low -- around 5.5 percent, if you have excellent credit, according to CarsDirect.com. While that's no match for zero interest, the rebate amount might actually be enough to more than make up for what you end up paying in interest.
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What's a buyer to do? "There's no single incentive that's best for everybody," said Susan Krusel, a spokesperson for Ford Motor Company. "That's why we offer different rates, rebates and terms. Every customer has a unique financial situation."
Other factors notwithstanding, the more expensive the car is, the more likely you are to benefit from 0 percent financing, added Ashley Knapp, a researcher for AutoAdvisor.com.
"Most Americans will spend $22,000 to $25,000 on a new car," Knapp said. "Once you hit about a $20,000 car, it usually pays to take the 0 financing. But in some of the smaller and cheaper cars, it pays to take the money, especially if there's a lot."
Running the numbers
First things first: you need a great credit score to qualify for 0 percent loans. Order your score online: try myfico.com, which will show you your score for a $12.95 fee. You also must be sure you can afford the monthly payments on a 0 percent loan.
But if you've checked those concerns off your list, it's time to weigh the relative merits of the rebate versus the rock bottom financing.
Take a Ford Focus. With a sticker price of $15,733, you can finance at 0 percent with 0 dollars down, giving you a monthly payment of $328.
On the other hand, if you take the $2,000 rebate and finance the rest at 5.5 percent, your monthly payments are $320 apiece over 48 months. A tiny difference in your monthly payments, but in total, the rebate saves you $391.
Of course, that's for a Ford Focus, a very inexpensive car. You could reduce the sticker price of a Dodge Grand Caravan -- $32,476 -- by taking the $3,000 rebate offer. If you put 0 dollars down and financed the balance at 5.5 percent, each monthly payment would cost $686 over 48 months.
But if you put no money down and financed the car at 0 percent, you'd pay $677 a month. Over time, that's a total savings of $454.
So arm yourself with all the numbers before you're blinded by slick talkers at the dealership or amazing numbers in an ad. And remember that in any event, the dealership must show you what you're paying in any finance charges, according to federal law, said Knapp.
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