Wealth

The Ultimate Car-Buying Opportunity

How to profit on Detroit's misery

By: Karen Hube
[ Updated: Sep 11, 2008 - 11:41:51 AM ]

Like most guys, you probably park financial reason curbside when buying a new car. The problem is that the fiscally smart approach -- getting a used Japanese number and driving it until it dies in 2018 -- just isn't much fun. But if you have good credit and can afford to pay cash, the unusual combination of zero percent financing deals and rising interest rates means you can pay yourself to buy a car. "We see it done all the time," says Joe Saul-Sehy, senior financial advisor at Ameriprise Financial in Troy, Michigan.

Here's how it works: Say you fancied the slick 2006 Chevrolet SSR hardtop convertible pickup, which starts at $39,890. Over the July 4th weekend, GM offered zero percent financing for 5 years with zero down. If you put the funds earmarked for your dream machine into a money market fund paying 4.6 percent, you could cover your monthly payment from the account and still have $5,509 left in interest at the end of the term -- enough to fully fund your IRA and splurge on a custom-made vinyl car bra to protect your front end. It's like getting a 14 percent discount on the sticker price.

The longer the payment schedule on your zero percent deal, the more you'll benefit by cutting checks from an interest-bearing account. But buy wisely: The cost of owning a gas-guzzling SUV that depreciates sharply might not be worth the savings. And if you're tempted to eke out bigger returns by playing the stock market, think twice. The shares you buy could take a nosedive during your payment term, costing you money.

Although you can't use this trick to snag a Porsche 911 or a BMW Z4 roadster, you'll likely have plenty of domestic models to choose from. Hurting for business, Detroit automakers began slashing interest rates to zero on a range of models this past summer, from the GMC Yukon to the Pontiac G6 to the Ford Mustang V6 convertible. If you missed it, don't worry. Deals are likely to heat up again this fall as the domestics get more desperate to make room for newer models, says Detroit analyst Doug Scott of GfK Automotive, a research firm in New York. So keep your eyes peeled. After all, the only thing better than an interest-free car loan is a financing plan that puts money in your pocket.