While many banks have failed to pass "bailout" gains to consumers, GMAC is using its $5 billion to get car sales moving.
After receiving these funds, GM immediately offered 0% financing for up to 60 months on many of its least popular models. Other loans offered carried rates ranging from 0.9% to 5.9% on dozens of other models - and lowered the required credit score from 700 to 621.
Under the terms of a new agreement between GM and GMAC, which is to be finalized by December 24, 2013, GM will no longer be required to fund below market rate loans through GMAC and GMAC no longer has to finance GM vehicle leases. These leases have been costing GMAC money because of the sharp drop in trade-in values in recent months.
This change stems from GMAC's transition to a bank holding company, which gave GMAC access to part of the $700 billion set aside to bail out the financial industry.
After news of the bailout, GM shares went up 14% in trading on January 2.
In return for the $5 billion handed to GMAC, the Treasury will get five million GMAC preferred shares, which are supposed to pay 8% interest.
The penalty if GMAC can't make the interest payments? If they are unable to pay for six quarters, the government will have the right to elect two members of the GMAC board.
If you actually need a new car and are willing to drive one of the least popular models, now is the time to buy. At 0% financing for 60 months, you should be able to pay for the car without paying any interest payments.
Get a copy of your credit report and check your FICO scores - if they're at 621 or higher, you're eligible for a loan. Of course, the 0% may be a teaser rate, made available only to borrowers with scores over 720, so it's still the best idea to get your scores as high as possible before you go shopping.
Remember to guard your personal information until you've chosen the car you want. Don't shop every lot in town and allow each dealer to access your credit report.
In addition, take a copy of your credit report with scores along with you. Some disreputable dealers, believing that consumers don't know their own credit scores, attempt to drive interest rates up by telling buyers that their scores are too low for the best rates - when in fact they are not.
Ask questions. Find out what score qualifies for what rate before you allow the dealer to access your credit report.
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