Dear EchoBay Expert:

Dear Loyal Reader: It is always wise to shop rates and this includes finding out what kind of rates your car dealer is offering on a new car loan. You wouldn't want to take advantage of a 3.9% rate from your credit union only to find out you could have received 0% financing from your auto dealer.

Being knowledgeable about what is available is always the best way to ensure you get the best deal. That being said, there are a few reasons why you shouldn't get financing through your dealer.

First, when they do offer great rates, it is generally only to those with excellent credit and for a short loan term (less than 36 months). Many buyers cannot afford the payments for a new car when the loan term is 36 months or less, no matter what the interest rate is.

Second, generally the car dealer is just the middleman between you and the actual lender and guess what, they are making quite a profit as the middleman.

Third, you may have more negotiating power with a check in hand. This will also prevent the dealer from convincing you that they are your only chance at financing and because of that you should settle for his high interest rate.

Finally, many dealers offer you the choice between a cash rebate or low interest financing on your new car loan. You must choose and you can't have both. But what you can do is take advantage of the cash rebate from the dealer and then take advantage of a low interest rate with another lender. In this case, you can have your cake and eat it too!

Dear EchoBay Expert:

Dear Loyal Reader: Yes, there are many downsides to extending your auto loan over too long a period of time. First and foremost is the "upside down" factor. This happens when you owe more on the car than what it's worth. If you go to sell your car while you're "upside down," you're going to run into the unpleasant surprise of realizing you need to take money out of your own pocket to get the car sold because you won't be able to sell the car for what you owe on it.

Another thing to look at what the interest is going to cost you. If you finance $35,000 over 48 months at a 7 percent interest rate, you'll pay about $5,225 in interest over the life of your loan. However, if you extend that loan term to 72 months, the amount you pay in interest jumps to about $7,910. That's a difference of over $2,600.

Unless you don't mind sacrificing that kind of cash for lower monthly payments, you might want to rethink the term of your car financing or you might want to look into purchasing a less expensive car so you can afford a shorter loan term.