You’ve seen the ads on TV — zero percent financing on the car of your dreams! Should you bite?

These deals mean you pay no interest on your loan. Other incentives manufacturers and dealerships use to get people to buy include rebates (cash back) and low annual percentage rate (APR) loans.

A zero percent loan sounds too good to ignore. It’s free money, right? But keep these facts in mind before you sign on the dotted line.

The downsides 

You might not get the loan. Zero percent financing offers are available only to consumers with the highest credit scores, according to the Consumer Financial Protection Bureau. If your credit report is less than stellar, you may be out of luck. Once the dealership rejects you for the loan it may try to switch you to a higher APR. A win for the dealer, a loss for you if you were banking on free financing.

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You’ll owe more each month. With most traditional auto loans, borrowers have three to five years —sometimes even up to seven — to pay it back. A zero percent deal, however, usually requires you to pay up in less than 36 months. The larger monthly payments could wreck havoc on your budget. What’s more, car dealers often require a substantial down payment for these loans — sometimes as high as 25 percent — so make sure you can afford that “free” offer.

You may miss out on better offers. A rebate offer will most likely come with a higher APR, but don’t let that deter you. If the dealer gives you a choice to take a rebate deal or take zero percent financing, run the numbers through an auto loan calculator. You may find the rebate offer would save you more money.

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What to do before you buy

Before you find yourself at the car lot committing to a zero percent financing offer, take these steps to decide whether it’s right for you.

1. Check your credit score. Zero percent loans are reserved for people with an excellent credit score, which starts around 750. So even if you have a good rating, say around 720, you may find that zero percent financing offer becomes a two, three or four percent APR offer once you get down to discussions.

2. Know what vehicles the rate applies to. Often zero percent financing applies only to a select few vehicles. These may be last years’ models the dealership is trying to get rid of or brands that are selling slowly. Avoid buying a car that doesn’t suit your needs just to receive a special financing offer.

3. Calculate the total cost and compare it to other offers. Auto manufactures can afford to offer a zero percent rate because the cost is incorporated into the price of the car. In other words, they mark up the vehicle price to cover the cost of the interest they are losing on the loan. By increasing the overall cost they also increase the taxes you will pay on the car.

Shop around for better financing deals at your bank or local credit union and be willing to take a rebate offer instead.

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4. Read all the fine print in the contract. Some zero percent loans come with special provisions that kick in after a grace period. Others may have stipulations if you default or are late on your monthly payment. Be aware of the charges you’ll have to pay if this happens. 

Brian Fourman is a stay-at-home dad who writes about home safety and personal finance.