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If you’re thinking about buying a new car, you owe it to yourself to do your research on financing options. Don’t be fooled by dealer promises of zero-percent financing. Let’s take a look at four hidden costs that come with these advertised low rates.

First, you may not qualify for zero-percent financing.

Car commercials don’t talk about the fine print, but dealers place a pile of restrictions on zero-percent financing. If your history with credit is anything less than perfect, don’t expect to qualify for these rates. Roughly 60% of people who apply for those loans get rejected.

Second, these loans are usually short-term.

If the dealer is offering zero-percent financing over the life of the loan, expect it to be no more than three years. This means a much higher payment than you’d have on a five- or seven-year loan. Additionally, many zero-percent financing offers only cover part of the life of the loan – usually six months. After that, you’ll be paying more in interest.

Third, dealers may promise zero-percent financing to trick you into paying more.

With their knowledge of your financing options, they can manipulate the price of your trade-in and the cost of the transaction to arrive at a monthly payment you’re happy about. That way, you’ll focus on the cost of the payment, not the price of the car.

Fourth, choosing zero-percent financing may prevent you from taking advantage of other discounts.

Manufacturers offer zero-percent financing instead of rebates and other discounts. Also, these financing packages are usually incompatible with special discount programs.

Let’s run the numbers.

This last hiccup can mean zero-percent financing is actually more expensive than a loan obtained through a private lender.

Check out the calculator below to view different scenarios:

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United Texas Credit Union
5500 UTSA Boulevard
San Antonio, TX

Information and interactive calculators are made available to you only as self-help tools for your independent use and are not intended to provide investment or tax advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

Have funding lined up in advance.

This can be a tremendous advantage in negotiating. By continually postponing questions of financing, you can let the dealer think there’s still money to be made. This position might lead them to give you more on your trade-in, lower the price of the car or offer you more options.

The loan you get to pay for your car may be the biggest financial decision you make outside of your home. You owe it to yourself to do your research. You wouldn’t buy a car just because it had an enticing price tag. Why would you do that with a loan?

If you’re considering buying a new car, your first call shouldn’t be to the dealership. Contact United Texas CU instead. Our professional staff can answer any questions you might have about auto loans and other options to finance your new car. Take the time to educate yourself about your vehicle financing options. Your wallet will thank you for it!

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