Harry Gross: Getting a no-interest car loan can be a detour to resale woes

Dear Harry

: I bought a car back in 2004, and I was able to get one of those seemingly great financing deals at zero percent for five years. I went to trade this car in on a new one (same car dealer), and I found that the trade-in was worth less, that I still owed on the car. It dawned on me that I couldn't sell the car to cover the remaining debt even though there was no interest involved in the payments. The dealer was willing to add the remaining debt on to a new car loan, but now I had to pay interest at 6.5 percent and agree to pay off the loan in two years. I could pay off the shortage, and then get a new five-year deal at the same 6.5 percent. My wife is urging me to pay cash for the remaining debt and buy the new car for cash. She's pretty sure that the dealer can give us a better price for a cash payment. What's your thought on this?

What Harry says: I have always been wary of deals that get you into this problem. For the same reason, I have always discouraged using home-equity loans as a means of paying for cars despite their generally lower interest rates. The car value too quickly drops to a point where it's less than the loan in those longer-term loans, and buyers could be paying on car loans long after the car is gone when they take a home-equity loan. Listen to your wife. *

Write Harry Gross c/o the Daily News, Box 7788, Philadelphia, PA 19101. Harry urges all his readers to give blood - contact the American Red Cross at 800-GIVE LIFE.