If you’ve listened to the radio or turned on the TV, you’ve probably heard dealers offering 0% interest on a new car. Have you ever tried to take advantage of these offers? If so, you were likely told that you or your purchase didn’t qualify. So how can you qualify for one of these offers?
Here’s how to take advantage of 0% interest deals — and how to know whether you actually should.
Where to find 0% interest loans
While it’s not impossible to get a 0% annual percentage rate (APR) loan at your bank or credit union, it would be remarkably 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.
Why can you find these deals on new cars? Because dealerships are incentivized to sell lots of new vehicles. As such, a dealership’s in-house lender will sometimes offer financing that is advantageous to the consumer — even at the expense of the lender. Franchise dealers also have larger stocks of a given new car, making it easier to offer promotional financing around it.
So we know that franchise dealers are your best shot at securing 0% APR. But is it possible to pay 0% interest at a used car dealership? The short answer is yes. If a dealer is looking to close a sale, they may offer to pay your interest for you. How can you best set yourself up to be offered these deals? Let’s dig deeper.
How to qualify for 0% APR auto loans
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, the age of your accounts and more.
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 0% APR financing.
- Your down payment and/or 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 0% APR financing, but you want to negotiate for them to pay your interest, it helps if you have a relationship with the dealership.
- 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 spending less or paying more upfront.
No-interest “hacks”: Looking beyond traditional auto loans
You can secure 0% APR financing in other ways, though they require specific circumstances.
For example, you may be able to take advantage of a 0% APR credit card or loan. You can either take out a new credit card with a 0% introductory rate, or take advantage of a personal loan offer from an existing credit card. However, 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. As such, you should only consider this option if your desired vehicle is inexpensive, or if you’re willing to pay some up front.
You could also get a better interest rate by taking out a home equity loan instead of an auto loan. However, this option comes with risks. You’ll have to pay closing costs, and, if you default on the loan, you could lose your home.
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 specific model is being sold at 0% interest. A few years later, the market will be flooded with that model, decreasing your car’s value and making it hard to resell.
Low- or no-interest offers may also require you to finance the car over a shorter period of time, increasing your monthly payments. Be sure to consider not only your overall budget, but your monthly payment budget, too. 0% APR isn’t worth it if you can’t make your payments on time.
But if you do secure the elusive 0% APR, Jones recommends making your loan terms as long as possible. After all, if you’re not paying interest, why lock yourself into higher payments?
There’s only 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.
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.
Looking to find the right personal loan for your needs? SuperMoney can help. Check out side-by-side comparisons of top lenders here. Or if you’d rather compare credit card offers, we can help with that too.