When you buy your next new or used car, should you pursue zero-percent financing, look for a deal that offers bonus cash, or seek out a loan that, while not 0% APR, allows you to pay off your debt over, say, 72 months instead of 60 months? This article will help you answer those questions. It will also link you to useful additional resources.
So you were streaming some ad-supported free media the other day, and an ad came on promising 0% interest on car loans for certain General Motors models. But when you visited the dealership to learn more, GM Financial said that you or the car you wanted to buy didn’t qualify.
Classic bait-and-switch? One of those phony deals to get you into the store for some high-pressure upselling and a full-interest loan for that Volkswagen Tiguan, Jeep Compass, GMC Sierra, Nissan Sentra, Lincoln MKZ, Buick Envision — or whatever else, depending on the dealership?
You’ve learned better than to take something-for-nothing offers seriously. And 0% annual percentage rate (APR) auto loans are just that. So you weren’t surprised you didn’t qualify. You knew there’d be a catch.
Seriously, is it even possible to get a loan and pay nothing for it?
Actually, it is. Many car dealers do offer, and honor, these deals. There are a few things you should know, however. This article will tell you how to take advantage of 0% interest deals when you buy that Infiniti Q50, Jeep Grand Cherokee, or Audi A5 Cabriolet, how to know whether you should, and what other options you might want to consider.
Is a 0% APR car loan really interest-free?
0% APR auto loans are what they say they are. If approved, you can make payments on your new car over a set term without paying anything beyond the purchase price. One catch, though, is that you have to get approved.
Companies giving out these loans only approve well-qualified buyers with premium credit. If that’s not you, you won’t get the zero-percent deal — meaning you’ll spend more money financing your new Chevrolet Silverado, Nissan Altima, or Volkswagen Jetta.
Who offers 0% APR auto loans?
It’s generally car manufacturers’ finance companies that offer this type of financing deal. Toyota Financial Services is an example. Even if they don’t make money on financing, manufacturers make money on car sales, so they still earn a profit.
Sometimes manufacturers partner with third-party dealers, as well. Being able to make 0% financing offers gives dealers an effective way to attract prospective buyers.
Why do dealers offer 0% finance deals? What’s the catch?
For starters, manufacturers aren’t going to offer these promotions on all cars.
Mike Arman, an auto finance and mortgage expert, says, “Zero-percent car loans are offered when a manufacturer needs to make a bunch of cars go away ASAP. It means the carmaker has a problem of some sort.”
Typically, this is caused by an overstock of cars that aren’t selling or are about to be discontinued. Were the Land Rover Discovery Sport to lose popularity one year so dealers had to clear it from their inventory to make room for the new must-have vehicle, you’d see a lot of 0% APR deals. For the automaker, it’s better to sell cars with 0% financing than to not sell them at all.
You also need to look out for a cost increase somewhere else in the deal, added as a way to recover the money lost by not charging interest. Arman says, “Since carmakers hate to lose money, and dealers hate it worse, the cars offered for zero percent may have the selling price marked up to recover the lost profit from the financing.”
He adds, “The salespeople may also be instructed to offer less on the trade-ins to recover the lost profit from the financing, or to try really, really hard to sell high-margin items.”
In light of all this, you should approach 0% financing deals cautiously. To help you do this, let’s look at an example of how a car’s cost can be manipulated.
0% APR loans vs. rebates
Manufacturers often present 0% financing offers alongside offers of higher-rate financing with a cash rebate (which must be used toward the price of the car).
Mike Gnitecki bought a new Toyota Prius C last month and says, “I had a choice of either a 0% APR loan or $1500 cash back from Toyota (to go toward the purchase price). The Toyota dealer told me that Toyota would only let me choose one of these, not both.”
Though the auto manufacturers and models involved differ from year to year, and even from one zip code to the next, you’ll very often be able to find a 0% APR car deal or cash incentives in your area. Even when you can’t, you should still be able to find a new-car financing deal that works for you.
The main takeaway is that you usually have a choice. You can pay a higher price for the car and pay no interest, or you can pay a lower price but more in interest.
Do you even want 0% financing?
Before looking for a 0% APR auto loan, consider whether it’s the right option for you. For example, let’s say you buy your car when a large volume of that model is being sold at 0% interest. A few years later, the market will be flooded with that model, decreasing your car’s resale and trade-in value. If you like to upgrade to a new vehicle every few years, zero-percent financing might not be your best option.
As well, low-interest offers and zero-percent financing may require you to finance the car over a shorter period, increasing your monthly payments. If you need a longer-term loan to make your payments manageable, perhaps one you can pay off over 72 months or longer (or just the standard 60 months), some 0 APR car deals won’t work for you. Be sure to consider both your overall budget and your monthly payment budget. A 0% APR offer isn’t worth it if you won’t be able to make your payments on time.
But if you do secure the elusive zero-percent financing, Jones recommends making your loan terms as long as possible. Ask for 72 months or more. After all, if you’re not paying interest, why lock yourself into higher payments?
There’s one potential downside of long terms on auto loans. Because new cars depreciate rapidly, by the time you fully own the vehicle, you may have paid more on it than it’s worth. Only go this route if you plan to keep your car for several years. And be sure to get gap insurance with your auto insurance provider to cover the full cost of the car in case of a loss.
How to calculate whether a 0% APR or a rebate is the best deal
Identifying the best deal will depend on your credit, the interest rate you’re offered, where you live, and the terms of the loan. “You need to run the math both ways. Depending on your final purchase price, regular interest rates, and term, paying zero percent might cost you more,” says Brett Anderson, President of St. Croix Advisors.
The table below shows how to do the math when comparing loan options.
As you can see, the total cost of an auto loan will vary depending on the interest rates you qualify for. In the example above, you’re better off taking a $2,000 rebate on a $27,000 car if you can qualify for a 2.5% APR loan.
Another thing to consider: You don’t enjoy the full benefits of zero-percent financing until the end of the loan. The bonus cash from a rebate, on the other hand, is yours right away. Should you sell or trade the vehicle before the loan term ends, your savings from the zero-percent APR will be reduced. So if you think you might not keep the vehicle long enough, choosing the cash rebate may net you more money .
The only way to figure out which deal is the best for you is to see what rates you qualify for, and then add up the numbers to find out the total cost of the loan. You want the best combination of low payments, low total cost, and minimal fees.
SuperMoney’s loan offer engine helps you review and compare a variety of third-party auto lenders on your own. With a low-interest loan, you can walk into the dealership as a cash buyer, which can give you leverage to negotiate down the price of that used Dodge Grand Caravan or new Audi Q4 e-tron .
Even if you’re planning to buy something more expensive and exotic, whether the “humble” Audi R8 or one of the unhumble offerings in the Aston Martin line, having your financing squared away ahead of time couldn’t hurt. (We doubt you’ll get many 0% APR offers on exotic car financing, though.)
Here’s a quick overview of the pros and cons of 0% APR car deals. Compare the pros and cons to make a better decision.
- 0% APR means you only pay for the car.
- Your may get lower monthly payments and total cost than you could otherwise.
- Opting for a longer repayment period won’t cost you more.
- You have to be well-qualified with premium credit to get approved.
- It may only be available on cars that are not selling well for some reason.
- You have to watch out for dealers hiking up prices in other areas to compensate.
- It may be cheaper to take a rebate with a higher APR when given the choice.
- You may be able to get a better deal with third-party financing.
How to get the best deal on your auto loan
While you don’t want to prematurely rule out the 0% financing option, you also don’t want to jump on it too quickly. It’s a good idea to shop around and compare your options. If you qualify for 0% APR financing at a dealership, you’ll also qualify for excellent rates with other lenders.
Find the car you want and then use SuperMoney’s auto loan offer engine to easily see what rates, terms, and monthly payments you qualify for with a variety of lenders to find the best deal.
Once you find it, compare the numbers against zero-percent financing deals and any deal you find with a cash incentive. Then you’ll be able to see which route is best for you.
Where to find 0% interest loans
While it’s not impossible to get a 0% APR deal at your bank or credit union, it is unusual. “It is very very unlikely that any person is going to achieve a 0% loan unless they are purchasing a new car from a franchise dealer,” says Matt Jones, Senior Consumer Advice Editor for Edmunds.
Franchise dealerships are incentivized to sell lots of new vehicles. This is why a dealership’s in-house lender will sometimes offer financing that’s advantageous to you — even at the lender’s expense. These dealerships also have larger stocks of each new car, making it easier to offer promotional financing for specific models. This means that franchise dealers are your best shot at securing 0% APR loans.
But is it possible to pay 0% APR deals at a used car dealership? It is. Dealers looking to close a sale may offer to pay your interest for you.
So, how can you best set yourself up for these deals?
How to qualify for 0% APR financing deals
The largest factor that will affect the APR you’re offered at dealerships — and other financial institutions — is your FICO credit score. Your FICO score weighs factors like your payment history, the total amount of money you owe, and the age of your accounts.
However, your FICO score is not the only factor that will determine the financing you qualify for. Here are a few others:
- Your auto loan history. In addition to your FICO score, you also have a FICO Auto Score. So if you only have fair to good credit, but you’ve never missed an auto loan payment, you may still qualify for zero-percent financing deals.
- Your down payment and the value of the vehicle you’re trading in. “The more you put down, the lower risk you are,” says Jones. In other words, “The more you put down, the better your chances of securing a better rate.”
- Brand and dealer loyalty. If your dealer doesn’t offer zero-percent financing but you want to negotiate for them to pay your interest, it helps if you’re an established customer.
- The make and model of the vehicle you’re buying. “There are certain brands that seem to always offer 0% financing, but that doesn’t necessarily mean you can buy the exact model you want,” says Jones. Low- and no-interest offers often apply only to marquee cars, like the Toyota Camry or Ford F-150. Alternatively, a manufacturer may want to push specific inventory off the lot, like the old model year.
- How much you’re financing. Jones explains, “A lot of the time if a dealership decides to pay your interest for you, they will have strict stipulations on how much you can finance.” The dealer won’t want to pay a lot of interest for you to borrow a large amount. You can reduce the size of your loan both by choosing a less expensive vehicle (making your SUV choice the Mitsubishi Outlander Sport instead of the Nissan Qashqai, say) or making a larger down payment.
0% APR “hacks”: Looking beyond the traditional auto loan
You can secure zero-percent financing in other ways, though they require specific circumstances.
For example, you may be able to take advantage of a 0% APR credit card. You can either take out a new credit card with a 0% introductory APR or take advantage of a special offer from the provider of one of your current credit cards. But this only makes sense if you’ll be able to pay off the balance before the introductory rate ends. If you miss the window, your interest rate will spike. So you should only consider this option if your desired vehicle is inexpensive, or if you’re willing to make a partial upfront payment.
You could also get a better interest rate by taking out a home equity loan instead of an auto loan. This option comes with risks, though. You’ll have to pay closing costs, and, if you default on the loan, you could lose your home.
To recap: key takeaways
- 0% APR car deals can be worth pursuing, but they won’t always net you the most money.
- Cash incentives from auto manufacturers will sometimes save you more than 0% APR. Always compare offers of bonus cash with 0% offers to see which is best.
- When accepting a 0% APR deal, watch out for inflated prices in other parts of the agreement. Sellers sometimes use these to recoup the money their affiliated financing company won’t make on the loan.
- If 0% APR is your best option, make sure your credit score is excellent. If it isn’t, you might have to settle for something less ideal when buying that new or used Audi, Volkswagen, or Chrysler.
- Though 0% APR deals are most common on new cars, used car dealers determined to make a sale may be willing to pay your loan interest for you. So you can get 0% APR when buying a used car.
- Be sure to compare how much you’ll ultimately save from 0% APR or bonus cash with alternative car loan and personal loan options. Automaker rebates and 0% APR might not be as profitable a way to buy that SUV as you’d expect.
0% APR car loan FAQs
Who offers zero-percent financing?
You are most likely to get a 0% APR offer from a franchise car dealership. While a 0% financing deal is more likely when you’re purchasing a new car, used car dealerships may also offer such deals to close a sale by agreeing to pay your interest.
Can you tell me how to get a 0% APR car loan?
The best place to start is right here. If you haven’t already read the article above, please do so now. Whether you want to finance a Chevrolet or Chrysler pickup truck, a Mitsubishi Mirage G4, a Volkswagen Atlas Cross Sport, a GMC Terrain SUV, a Hyundai Sonata, or one of the models offered by Nissan, knowing how to get the best financing will make your car purchase a better deal, saving you money in the long run.
What is 0 APR financing?
Also known as interest-free financing and zero-interest financing, 0 APR financing means that you pay only the purchase price of your car, not interest. It is a financing deal used to promote more robust sales, such as when prior-year models need to be moved out of inventory quickly to make room for new models.
Can you get zero-percent financing on used cars?
Used car dealers highly motivated to close a sale may agree to pay the interest for you when you take out a car loan. Since they won’t want to spend any more than necessary, they may require that you make a partial payment upfront to reduce the total amount financed. They may also be reluctant to allow a longer-term loan, such as one running 72 months rather than 60 months.
If you’re looking to get 0% financing, you should start by asserting your creditworthiness. Polish up your credit score, and make sure you’ve paid off past auto loans on time.
Since these offers are made only on specific makes and models, you’ll have better odds if you don’t have your heart set on a given vehicle. If you need a specific car, consider financing your purchase through a 0% APR credit card or personal loan instead.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.