Mike Robinson didn't bite last Christmas when his car dealership offered him a zero-per-cent financing option for a new 2004 Dodge Caravan.

Calculating that the deal wasn't all that advantageous to him, the Ottawa real estate agent instead opted for a combination of cash and discounts totalling more than $7,000, reducing the price of the vehicle from about $30,000 to just under $23,000.

"Even though it said zero per cent, the cash discount they gave me was so substantial, the zero per cent had obviously been built into the price of the car. So it wasn't [really] zero per cent," says Robinson.

While it might be tempting for consumers to jump for loan conditions that only entail paying down principal, the financial exercise Robinson went through to determine the best deal for him is the same due diligence that others who are purchasing a vehicle should undertake, say the experts.

"It is definitely a trade off," says David McConomy, a professor of accounting at Queen's University in Kingston, Ont. "The dealer will offer you zero-per-cent financing on a purchase [but] if you were to pay cash for the same car, you probably could negotiate the price down to some lower amount."

Mike Hudson, consumer advice editor for Edmunds.com, a website devoted to auto consumers, offers a slightly different variation on that strategy.

"Most companies will say you can get cash back or zero-per-cent financing," he says. "Take the time to calculate that out, because often you can save a lot more money by taking the cash and getting a regular bank loan. The interest you pay to the bank might be less than what they're willing to give you up front. And you could take that cash and give it right to the bank."

Hudson, who is based in Santa Monica, Calif., used to cover the Big Three North American auto makers (General Motors, Ford and Chrysler) for a Detroit newspaper. He says the zero-per-cent financing option is primarily a North American phenomenon that grew partly out of recession fears after the Sept. 11, 2001, terrorist attacks, when the auto makers were desperate to keep inventory moving.

Although zero-per-cent financing has been largely successful as a promotional tool, Dave Redinger, a licensed mechanic who runs his own shop in west-end Toronto and is the voice of The Neighbourhood Mechanic on AM 740 Radio, is skeptical about its real value to consumers.

Putting the potential financing deal before the merits of the car itself is akin to "selling the sizzle, not the steak," he says, adding that many well-known import dealers, such as Honda and Toyota, "stuck to their guns and did not reduce their interest rate nor discount their cars. They ended up saying, 'Our cars are better quality and we don't have to discount them.' And they continued to sell."

Another potential danger, say consumer advocates, is that zero financing could tempt purchasers to select a higher-priced model than they can comfortably afford. In a leasing scenario, too, "it's very common that, by the end of the lease, the car is worth nowhere near what the buyout is," Redinger says.

In the parlance of the auto industry, this is known as being "upside down" or "in the ditch."

So what are some things consumers can do to avoid putting themselves in this situation?

One thing that may prove beneficial, says McConomy, would be to treat the auto loan as if it were a mortgage, and not only make as large a down payment as possible, in order to reduce the size of the loan, but also prepay it off as quickly as possible.

Consumers also need to hold on to their car for a much longer period than the loan, otherwise, they are going to end up being continually into car payments, warns Jim Savory, an economics professor at York University in Toronto and a long-time member of the Consumers' Association of Canada. Savory believes loans should be made for less than 48 months.

A consumer trying to trade in a vehicle less than two years into their loan's term will also likely find themselves in an "upside-down" position in terms of owing more on the loan than the car is worth, some experts believe.

Consumers also need to become aware of how quickly their vehicles depreciate.

"The biggest cost of owning a vehicle, believe it or not, isn't the fuel or the maintenance, but depreciation," notes Redinger, He estimates that when a person drives the car off the lot, it automatically depreciates between about 20 to 25 per cent of its list price.

He notes luxury cars tend to depreciate more quickly than other models, and advises consumers to purchase a vehicle with a high residual value, rather than a model that may offer zero-per-cent interest, but will sting consumers when they try to sell it.

Furthermore, a long-running loan, even at zero per cent, coupled with high depreciation, could put an auto consumer in a precarious position because that will result in payments "so small they don't even keep up with depreciation," Redinger adds.