Hidden Costs of Dealer Financing

These days, more and more dealers are offering low-rate loans even zero-percent aprs. While it's nice to have choices, they can be downright confusing and not always the best deal. Such deals often come with inflated prices for extended warranties and loan insurance, high application fees, and pre-payment penalties. And because you forfeit the rebate option, you may end up paying a higher price for the car.

Below are some "hidden costs" in dealer financing options:

Dealers' low-rate loans and rebates almost always are available only on slower-selling models. These cars may have lower resale values.
Dealers' low-rate loans can have bigger prepayment penalties and can require bigger down payments.
Dealers' loan terms could be as little as two year financing - meaning huge payments each month.
Dealer financing plans usually are limited to dealer stock. That means you may have to sacrifice the color, style, and/or options you want. Unwanted options can add 25% to 30% to the sticker price of your car.