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Don't Let Zero-Percent Financing Fool You. Here's Why You Should Never Finance Your Car at the Dealership.

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You've had your eye on a vehicle at the local car dealership, and it's finally time to take a more serious look. Now that you’re up close, you can confirm: It’s the perfect fit for you and your family. Plus, they are offering zero-percent financing!

In all the excitement, it’s easy to follow the salesperson to their office, sign on the dotted line and drive away without another thought. However, it pays to take a pause! Before committing to their financing offer, make one quick phone call. A conversation with your personal finance professional can save you thousands of dollars and help you avoid hidden costs.

Stop. Don't one-stop shop

It seems logical to finance your vehicle at the dealership since this is where you negotiated a price. However, this is one case where one-stop shopping could end up costing you serious money. Dealerships are incentivized to have you buy a car on terms that are best for their business, not your wallet.

In other words, you want the best financing option available. But the dealership wants to make a commission on your loan, which they do if they act as a broker. These are competing goals, whereas going straight to a credit union or other financial institution cuts out the middleman and helps you find a financing option that is really in your best interest.

Consider this, too: Credit unions are known for offering consumers the lowest auto loan rates on both new and used cars. If you have already financed your loan through the dealership, it’s not too late. Credit unions can also offer great rates when they refinance your existing auto loan.

Zero-percent financing? Too good to be true

You might encounter the words “zero-percent financing” at the car dealership, which means that you pay no interest on the loan. That sounds great! But, when you dig deeper, you’ll find there’s more to this story.

Dealerships sometimes raise the price of vehicles to offset the cost of offering no interest. Zero-percent financing loans also tend to have large baked-in penalties and fees. For example, some loans may penalize the borrower for paying off the loan earlier than expected, through additional fees or retroactive interest.

At the end of the transaction, you could end up paying more than you can afford, instead of saving money as promised by the dealership.

Dealerships also sometimes pack your payment. While you’re with the salesperson, you might be more focused on the monthly payment than the price of the vehicle. Dealerships will then add products and services onto the loan, such as extended warranties. The price seems low, but over time, it will add up to more than you intended to pay for the vehicle.

Look for the three Ts: Trusted, Transparent, Tailored

When you’re shopping around to finance a car, look for a financial institution with the three T’s:
  • Trusted: Experienced, reliable and trustworthy are key.
  • Transparent: You should know exactly what you are signing and how it impacts your bottom line.
  • Tailored: The financial institution should help you find financing that fits your needs not theirs.
Power Financial Credit Union does exactly that and more. With your best financial interests in mind, you are sure to drive off the dealership lot, knowing you made the right choice every step of the way. Happy shopping!