Many people love 0% APR deals because they can finance a car without paying interest, saving them a lot of money over the life of the loan. However, you need a good credit history, a stable income, and a low debt-to-income ratio to qualify for these deals. Even then, the vehicles eligible for these deals are limited to specific makes and models, as the loans are usually provided through finance companies owned by the manufacturers.
What Is a 0% APR Car Deal?
A 0% APR car deal means you borrow money without paying any interest. Unlike traditional loans, where interest and fees are added, your monthly payments only cover the amount the lender paid to the dealer. This is why 0% APR financing is attractive as it eliminates the extra interest cost, and you only pay the principal.
Note! In 2024, the average APR was 7% for new and 11% for used cars, according to Edmunds.
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How 0% APR Car Deal Works
0% APR Financing is a tool used by auto manufacturers to move inventory, offered through their own finance companies. When a manufacturer needs to sell more cars, they may offer 0% APR to select buyers.
Interest-free loans seem attractive, but dealers may make up for lost income by pushing other products like extended warranties or insurance. Buyers may also have to give up other discounts like rebates to qualify for the deal.
These loans are usually only available through dealership financing for new cars and for specific models. While there’s no interest, you still need to make timely payments, as missed payments can hurt your credit score.
Where to Find Car Deals with 0% APR
How to Qualify for 0% APR Deals on Cars
Good credit. No-interest financing is usually reserved for borrowers with excellent credit. A credit score of 720 and above is usually required to qualify for a 0% APR. Some dealers may offer to finance those with credit scores of 650-720, but these individuals will likely get a lower APR instead of 0%.
Enough income. Even with 0% APR, you still need to prove you can afford the monthly payments. Lenders will check your income to make sure you can make the loan payments comfortably.
Low debt-to-income ratio (DTI). Your DTI plays a big role in qualifying for 0% APR. Ideally, your DTI should be 36% or lower. That means no more than 36% of your income should go to debt repayment. A lower DTI increases your chances of getting 0% APR financing.
Preapproved financing. It’s a good idea to come to the dealership with a preapproved financing offer. This will allow you to compare the savings from 0% APR financing with other loan options and make a more informed decision.
Contact the dealer. Eligibility requirements may vary by dealer so it’s best to contact them directly to know the specific requirements for 0% APR financing.
What to Know About 0% Financing
Limited vehicle selection. Dealers don’t offer 0% APR financing on all makes and models. The vehicles eligible for no-interest loans are usually limited to specific models, older or slow-selling ones, and you may not be able to get the features you want.
High monthly payments. Although you won’t pay interest on the loan, the monthly payment may still be high. The lack of interest doesn’t lower the vehicle’s price, so the payment may still be a stretch for your budget, especially for higher-end models with additional features.
Additional costs. Even with 0% APR, you’re still responsible for taxes, registration, title fees, and other costs. Dealers may also try to sell add-ons like extended warranties, insurance, and gap coverage, which can add to the total cost of the vehicle. Be sure to review these options before buying.
Unnecessary add-ons. Since the dealer doesn’t earn from interest, they may try to sell you warranties or gap insurance. Be careful and don’t buy coverage you don’t need, as it can add to the total cost of your purchase.
Budget for higher payments. 0% APR may sound sweet, but it’s easy to get carried away and buy a more expensive vehicle. Make sure the car you choose fits your budget and you can afford the monthly payments.
Before Applying for 0% APR Financing
How to Get 0% APR Car Loan
Make sure your credit is excellent. Lenders prefer borrowers with excellent credit, 720 and above, to offer the best 0% APR deals. But you can still qualify for competitive rates with 650 and above. A good credit history with on-time payments and responsible debt management is key.
Have a steady income. Lenders want to make sure you can afford the monthly payments, especially since 0% APR loans have shorter terms. A steady income proves you can meet your payment obligations without defaulting.
Save for a down payment. Some loans may not require a down payment, but many lenders require a significant one for 0% APR financing. A bigger down payment reduces the loan amount and proves you’re financially responsible.
Check for 0% APR offers. These offers are usually from captive finance companies of automakers, not traditional banks or credit unions. Research the current offers from manufacturers by visiting their websites and compare with other brands.
Negotiate the price. Don’t mention 0% financing until after you’ve negotiated the price. This will prevent price inflation due to the financing offer. Be firm on add-ons like gap insurance or extended warranties, which are often pushed by dealerships.
Apply for financing. After you’ve agreed on the price, apply for the 0% APR loan. Make sure you have all the necessary documents and are ready for any step of the financing process.
When a 0% APR Car Deal Is Not Worth It
0% APR Car Deal Alternatives
Get a traditional auto loan. If you don’t qualify for 0% APR financing, you can still get a loan with competitive interest rates from banks, credit unions, or dealers. Shop around to compare rates and terms from different lenders to get the best deal for you.
Pay cash. If you don’t need a car right away, save up and pay cash for your vehicle. This way you avoid interest charges and no monthly payments.
Buy a used car. 0% APR loans are only available for new cars. A used car is a more affordable option, lower overall purchase price and lower monthly payments.
Cash-back rebate. Manufacturers often offer rebates on new or certified pre-owned vehicles as an alternative to 0% financing. These rebates can lower the price of the car and in some cases, you can apply it to your down payment or get it as a check.
0% APR Car Deals vs Bonus Cash
Conclusion
When choosing between 0% APR deals and other financing options, you have to consider your financial situation and long-term costs. 0% APR may be attractive, but it’s not always the most cost-effective. If a new car's monthly payments are too high, or you prefer a used car, cash rebates or traditional auto loans might be better. In many cases, paying cash or getting a competitive rate from a bank or credit union may be more valuable. The best option depends on your budget, the car you’re buying, and what fits within your means. Always weigh all options before committing to a deal.