What You Should Know about 0% APR Car Deals

0% APR car deals allow buyers to finance a vehicle without paying interest, making them an attractive option for saving money. However, these offers are usually limited to specific models and require excellent credit to qualify. While skipping interest charges can lower overall costs, some buyers may benefit more from cash rebates or traditional financing. Understanding the terms, eligibility requirements, and potential trade-offs is essential before choosing a 0% APR car loan.

06.03.2023
1118
14 min.

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 You Should Know about 0% APR Car Deals

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

  • Manufacturer websites. Check the websites of car manufacturers like Ford, Toyota, and Nissan for the latest 0% APR promotions. These websites usually have a financing section where you can find current deals directly from the automakers.

  • Local dealerships. Visit or call local dealerships to ask about any 0% APR financing deals they may have. Dealerships often have deals not listed online, so it’s best to talk to a sales representative to find out what’s available.

  • Comparison websites. Use sites like U.S. News and CARFAX to compare 0% APR offers across different car manufacturers and models. These sites aggregate financing deals from various sources so you can compare and track changes in available deals.

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

Before applying for 0% APR financing, check your credit scores to see if you qualify. Review your credit reports to see if any issues may affect your eligibility. If your credit needs work, consider delaying your purchase and pay down balances, and get accounts current. This will increase your chances of getting the best financing terms.

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

  • You prefer a used car. 0% APR financing is for new cars, which are more expensive than used ones. If you want to save money, buying a used car may be the better option as it will cost less, and you won’t be forced to buy a new car.

  • You can’t afford the car. Even without interest, a 0% APR loan may stretch your budget too thin. If the monthly payments for a new car are more than what you can afford, it will lead to financial strain. In some cases, longer loan terms (up to 72 months) may reduce monthly payments, but the total loan amount still needs to be manageable.

  • Rebates offer more savings. Sometimes manufacturers offer cash rebates along with competitive interest rates which can give you better overall savings than 0% APR. If the rebate brings down the price of the car significantly, you may end up paying less for the car even with a regular loan.

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

  • Bonus cash or cash-back rebate. This is a discount or cash bonus offered by the manufacturer that lowers the price of the vehicle. The rebate is applied directly to the car’s price, so you need to finance less and therefore lower monthly payments.

  • Comparison with 0% APR. Unlike cash rebate, 0% APR is a zero percent interest rate on your loan, so you save on interest. But it doesn’t reduce the actual price of the car. With 0% APR, you still have to pay the full price of the vehicle, but without the interest charges.

  • When to choose bonus cash. If you can get a cash rebate, it may be better because you’re paying a lower price for the car. However, your monthly payments may be higher since the loan amount is still large.

  • When to choose 0% APR. 0% APR is better if you want to lower monthly payments since you won’t be paying interest. But these offers are only available for new cars and not all models.

  • Can’t be combined. Cash-back rebates and 0% APR offers can’t be combined. You have to choose one or the other, and often which one is available depends on the vehicle models you’re interested in.

  • Which is better. If you want to lower monthly payments, 0% APR is usually the better choice, even if the loan amount is higher. If you want to lower the overall cost of the car, a cash-back rebate may be the better option since it lowers the final price.

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.

FAQ

What to do when considering a 0% APR car loan?

  • Negotiate the car’s price first before discussing financing options.

  • Get preapproved for an auto loan so you know your budget and have leverage at the dealership.

  • Make sure the monthly payment fits within your means so you won’t be strained.

  • Also, check if the manufacturer has cash-back incentives that can be combined with the 0% APR deal to lower the overall cost.

What to avoid when considering a 0% APR car loan?

  • Don’t accept a short-term loan with high monthly payments you can’t afford.

  • Don’t choose a longer loan term just to lower your monthly payment if it means you’ll pay more in the long run.

  • Always compare the savings from a 0% APR deal vs a cash-back incentive before you decide, one might be better overall.

  • If possible, don’t skip the down payment, since it reduces the loan amount and can lower your monthly payments.

How can I increase my chances of getting a 0% APR car deal?

To increase your chances of getting a 0% APR deal, flexibility is key. Dealerships offer these promotions on less popular or older models, so being open to different vehicle types, colors, and even last year’s models can help you get better deals.

Also, shopping at the end of the promotional year when inventory is high and competition for specific models is low can give you more discounts or financing options.

And score better before you buy to qualify for 0% financing. These deals are for good credit buyers.

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