Quick Facts About 0% Financing
- You repay the money you borrow and nothing more with a 0% APR car loan.
- When you get 0% financing, you typically won’t receive additional manufacturer incentives, such as cash-back offers.
- Attractive 0% loans are reserved for car buyers with exceptionally good credit.
When shopping for a new car, you’ll probably notice some low-interest special offers and incentives from automakers. Some brands offer loans with 0% APR interest, which suggests that you can finance a car and pay no interest over the loan term.
However, is 0% financing too good to be true? Read on to learn about 0% APR financing and whether getting a no-interest car loan is always the best choice.
- What Does 0% Financing Mean?
- How Do 0% Car Deals Work?
- Get a Free Credit Report
- When Is 0% a Good Deal?
- When to Avoid 0% Financing
- How to Get 0% Auto Financing
- Bottom Line on 0% APR Financing
What Does 0% APR Mean?
Having 0% financing on a car loan means you pay no interest to the lender on the money borrowed to buy the car. In other words, a 0% APR car loan is an opportunity to pay the same amount of money as a cash buyer, even though you’re spreading your payments over a longer term.
When you take out a car loan, you’re borrowing money to pay for a car, and that much is obvious. But the lender typically doesn’t give you that money for free. Instead, you pay interest and fees to the bank for lending you the money. APR stands for annual percentage rate, which calculates how much the lender charges to borrow the money.
With a 0% financing deal, you repay the money you borrow and nothing more.
How Do 0% Car Deals Work?
Since you’re not giving the bank any incentive to lend you money, you might wonder how it’s possible to get a 0% car deal. The answer comes down to this: It usually isn’t the bank doing the lending but rather the automaker itself. It’s called captive lending.
That’s why you sometimes see Chrysler Capital, Nissan Motor Acceptance Corp., Volkswagen Credit, and the financial arms of other manufacturers offering to finance a vehicle at the dealership.
An automaker makes money with a 0% deal in one simple way: It doesn’t make money on financing but rather on the car itself. Dealers will try to sell you extras to make up the difference, including extended warranties for your vehicle.
Also, the cost of financing gets built into the price of the car. If you obtain a 0% financing car deal, you likely will not get any other incentives on top of that. The automaker still pockets a nice profit on the sale of the car despite not making any profit on the financing.
If you have the cash to buy a car outright, you might be better off taking advantage of bonus cash incentives rather than 0% financing.
Pros of a 0% APR Car Loan
- Repay only the dollar amount borrowed without any interest charges.
Cons of a 0% APR Car Loan
- Only borrowers with outstanding credit qualify.
- Availability is limited to specific models and trim levels.
- Shorter loan terms mean higher monthly payments.
Is It a Scam?
No, 0% car deals aren’t usually a scam. However, the deals can often be challenging to qualify for, and applicable stock might be limited, and that’s where many shoppers run into disappointment. For example, automakers or dealers will often advertise 0% interest, even when it’s only available for specific vehicles and only to shoppers with long credit histories and the absolute highest credit scores.
Buyers with excellent credit scores are likely to make every payment on time for the life of the loan and maybe even pay it off early, which makes it worth it for the automaker to offer 0% financing. When a borrower’s credit history looks excellent, car finance companies, banks, and other lenders face less risk.
When shoppers with only average or poor credit histories reach the dealership, they learn they don’t qualify for the special rate. That’s when buyers find out about a higher interest rate that will earn more money for a dealer or an automaker.
Dealers use 0% financing to get people into the showroom. We don’t consider this a bait-and-switch scheme since the 0% offer is technically sound. But we do suggest you check your credit score before heading to a dealership. That way, you will know if you qualify for a loan with 0% financing.
How to Get a Free Credit Report
To find out your credit score to see if you qualify for 0% financing, check your credit score with all or any of the three credit reporting bureaus: Experian, Equifax, and TransUnion.
Consumers can obtain free credit reports once a year. The official website to get your free credit report is AnnualCreditReport.com. Federal law guarantees your right to get your free annual credit report.
Understanding Your Credit Score
FICO scores, created by the Fair Isaac Corporation, range between 300 and 850. Lenders typically look for a score of 800 or above for 0% car loan offers.
Experian says most consumers’ credit scores fall between 600 and 750. The average credit score in the U.S. was 715 in 2023, up one point from 2022 and 12 points higher than before the pandemic when the average score was 703. Here’s how credit scores are categorized.
- Poor: 300-579
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Excellent: 800-850
When Is 0% a Good Deal?
Financing at 0% is a good deal if you can afford the loan. When you begin car shopping, check Autotrader’s Car Affordability Calculator.
It’s also a good deal if you have had your eye out for a new car for a while, your credit score looks excellent, you crunched the numbers in your budget to figure out a monthly car payment you can afford, and the perfect 0% financing deal came up for a car on your shopping list.
Like with any financial commitment, it’s always good to do your homework ahead of time to avoid buying a car and taking on debt on impulse. That is a recipe for buyer’s remorse, and you could get stuck hating your new vehicle and hating your new loan even more.
If you’ve been planning for a new car purchase and found a 0% financing deal that you qualify for and is friendly to your budget, it’s an excellent way to borrow money with no interest.
When to Avoid 0% Financing
Financing at 0% is a bad deal if you can’t afford the loan. If you want to buy a new car just because a 0% financing deal seems too good to pass up, you may want to pause and reconsider.
Were you even looking for a new car, or did you come across a great financing deal and get car fever? Even if you don’t pay any interest on the loan, can you make the monthly payments work within your budget? Are you comfortable with the risk involved with financing a car rather than owning it outright?
Any new car shopper needs to consider all of these questions. In other words, don’t rush into a car loan you can’t afford just because of an attractive 0% offer. Automakers run deals like these frequently in good economic times. So there’s nothing wrong with taking your time to give some extra thought and planning for your next car purchase.
Another thing to keep in mind is what you can afford as a down payment. If you get 0% financing on a new car loan but make a low down payment, you’ll be upside down on your new vehicle (owing more on it than it’s worth) the second you drive it off the lot, and your new car becomes a used car.
Being upside down on a car is never good, and it can mean you need GAP insurance. This more expensive coverage pays the difference between what you owe versus what a car is worth after depreciation if the vehicle gets totaled. A good rule of thumb is to put at least a 20% down payment on a vehicle to avoid financial insecurity.
Another way that 0% financing can be a bad deal is if it’s just too long of a loan. Typical car loan terms range from three to five years. Sometimes these deals stretch out for 72 months or six years. Six years is a lot of time to spend paying for a car, no matter how good the monthly payment seems.
What if you need to downsize or buy a bigger car but still owe money on a car you bought because of a great financing deal? The shorter the term and the higher your monthly payment, the sooner you’ll own your vehicle. Owning your car is the most financially secure position to be in with your vehicle.
How to Get 0% Auto Financing
If your credit is excellent, you will qualify for a 0% interest rate. However, if your credit score shows up below 800 on your report, you will need to confirm that the rate is available for you at the dealership.
- Negotiate the best deal first. Before you show your hand on financing, take the car on a test drive and negotiate the best deal on the vehicle.
- Find out if you qualify. At this point, the dealer will look at your credit history to see if you qualify for 0% financing. There is no specific credit score set in stone that determines whether you qualify for 0% financing. But generally, a credit score of around 740 or higher can help you obtain the lowest interest rate, like 0% financing.
- Be willing to back out of the deal. If the dealer explains that you can’t obtain the loan at 0% financing, you shouldn’t necessarily back out of the deal. But consider whether you’re comfortable with the new rate the dealer presents to you instead. If it’s too high for your liking, remember you can check other options.
- Look at other dealerships. You can always consider buying a car from a different dealership. You can also go to the dealership prepared with a credit union or bank financing deal to use as a negotiation point if needed.
Should I Let a Dealer Look for My Finance Company?
Savvy car buyers consider all their options before financing their new vehicle. Your bank might give you the best deal because of your loyalty. Credit unions often have excellent rates for their members. And the car dealership can check several lenders at once, including the manufacturer’s lending arm. Using that captive lending is the only way to get the 0% APR financing — and usually only if you’re in the top tier of credit scores.
The Bottom Line on 0% APR Financing
Finance offers with 0% interest are an excellent incentive for qualified shoppers already in the market for a new car. A 0% financing deal shouldn’t be the sole determining factor in your new car purchase. If you’ve done all the proper planning for your new car purchase and you find a 0% deal on a loan that works within your budget, it’s a great way to save money on car loan interest.
Editor’s Note: This article has been updated since its initial publication.
There are a few things to keep in mind when financing. Never tell the dealership how you plan to pay. Negotiate up front and get the best deal. Don’t let them know you have a trade in either, and it at all possible, sell your vehicle yourself to get the best return. My husband and I won’t buy a car unless we know that we can pay it off quicker if we wanted to. Be smart about how much car you can afford. Sometimes, it’s not wise to buy a new car if you know you will trade later. You can end up upside down on your value/payments. Do your research. There are a handful of cars/trucks/suvs that do hold their year to year value with average miles driven. It’s all about research and budget. Do not let anyone run your credit until you’ve done due diligence on what they will accept and if it’s really what you want. I have seen too many people jump into buying a car because they “fell in love with it” but don’t know anything about it other than it looked nice and was fun to drive. There are a lot of comments on here that are negative, but sometimes, it can be worth the debt if you travel a lot for work and need the dependably. Again, don’t go to a dealership until you know what you need the car for, how much you can afford (take into account interest, taxes and insurance), and the pros/cons of the vehicles. For certain people,72 months 0% is a great deal. For others, it might be best to go another route. …..Research, research, plan……
Does the dealer need to be part of the manufacturer 0 percent loan? I want to keep everything separate I only want to purchase the car from the dealership,I dont want them involved in the financing or trade in of the old vehicle..
A condescending article.
0% financing is extremely expensive
for example, VW has a 0% financing, but the fine print (always read it) says “monthly payment for every $1,000 you finance for 60 months is $16.67″…. if you do the math, 16.67 a month times 12 months, that is $200 per year…. $200 per year per $1000, we are talking 20% interest…… you can certainly get better rate from any bank…. that is just a misleading advertisement…. super bad deal
“monthly payment for every $1,000 you finance for 60 months is $16.67”.
This is not a charge at all, it’s just telling you how much your payment will be per 1000 you borrow….if you borrowed 1000 at 0% for 60 months your payment would be 16.67/month….if your car was 30,000 your payment would be 30 x 16.67 = $500/ month. 0% really is 0%, there is no trick or catch.
This is a ridiculous comment. $1000/60 = $16.67. For every $1000, you’ll pay that every month for a 5 year loan. They are required to disclose this so the buyer knows there are no hidden fees or misleading interest charges. 0% is 0%. It’s same as cash for an extended period. Your math is completely wrong in this case.
I am gobsmacked at the utter innumeracy and gullibility of most of the people posting to this forum. The only ones that seem to have their act together are those advocating keeping a car for a long time, taking good care of it and making it last. The “zero interest” and “cash-back” shell games played by the auto industry are so easy to win when they’re playing with innocent pilgrims who don’t understand math. Education in America has failed miserably in this respect.
The cheapest car is the one you own. That said, with a growing family, I’m interested in keeping them safe. I wish I could have it both ways.
Amen, brother. Thanks for your insight.
I traded a 16 year old Dodge Durango with 316,000 miles. Rocker panels completely gone and rust everywhere. They gave me $3800 trade in on a new Durango. Total hocus-pocus mathematics!
I was told they couldn’ negotiate a price because I’m already getting 0 percent interest.
There is no such thing as 0% interest loans. The author is missing a critical point here, although he hit on it briefly. A 0% interest loan means you’ve lost on the negotiated price of the car. The car dealership is taking a portion of its profit from the spread between the invoice price it paid and the negotiated price you paid and is paying the finance company interest up front. That’s why you see advertised deals to the effect of “$5,000 cash back or 0% interest”–if you take the 0% interest the dealer takes the $5,000 in additional profit it makes to pay the loan interest down to 0. You may end up paying a higher interest rate than market by getting your “0% interest loan.”
I find this is so confusing, even this article.
I’m currently trying to get into a GMC. I’ve been saving for quite a while to buy with cash and skip the yolk and additional fees associated with loans. I became interested in the 0% loan idea, but the dealer is saying you can’t get dealer rebates plus the 0% interest loan. Guess I’m back to saving…
One thing you could do, is say you want to buy a 50,000 truck, you can get the dealer incentives to say 40,000 put down 20,000 and finance the other 20,000 and you will be better off then doing a 0% loan.
You’re forgetting about the “service charge” on each thousand you borrow! Total SCAM!!!!
Please elaborate. How does that work?
I recently purchased a vehicle with 0% financing. The Lender I qualified with was giving me 4.24% and finance charges were over $3k. Dealer offered me zero percent for 60 months and saved my $3k in finance charges. My credit is excellent too. Thanks for this very informative article
There was a 0 percent interest rate when I bought my 2016 jeep,I had a 802 credit rating,they acted like they didn’t know anything about it when I told them that I seen it on tv,and that is the reason I was going to buy one.I ended up paying 30,000 dollars for the Jeep.
There is something I would like to ask about the “0 interest” auto financing. Is there interest accruing that you do not owe as long as you have made your payments on time during the 5 year period and have paid the price of the vehicle off?? I worked in the furniture industry for 16 years, and they also offer “0 interest” financing for up to 5 years. However, with some of those offers, the small print indicates that with one late payment, your “0 interest” deal is voided and from that day forward, you are paying interest on your purchase. I’m just curious if car loans work the same way??
I have a friend who has just purchased a new Ford under this type of financing plan. She is notorious for paying things late, so I’m a little nervous for her……..
Good informative post. One also needs to be wary that the dealership hasn’t ballooned the cost of the vehicle- never accept the sticker price, find out what dealership paid the manufacturer and negotiate from there.
How can one find out the actual invoice price?
This is really helpful particularly for those who are not savvy about 3rd party financing. Thanks.
The main thing you ignore on 0 interest loans is by applying for them you generally forfeit any eligibility to get cash back or rebate offers. In other words, as with most things in life, nothing’s free.
So that is a trade off, you forfeit cash back or rebates for a 0% interest rate, nothing’s free?? The loan is free… which is awesome, no interest for the life of the loan, as if you paid cash except you get 5 years to pay it off. It’s a good deal no matter how you try to spin it…
I’ve bought two new cars at zero percent financing now. The first car was in 2010, I was fresh out of college, barely had any credit, no mortgage, and my credit score was about 600 (from lack of credit). The only thing on my credit was a $3000 college loan I was paying on and $5000 for my previous used car (paid off). I also did not need anyone to cosign for me and I was 26 years old at the time.
I qualified for zero percent just on that. I drove that car for 4.6 years and then I decided to trade it in for cash back on a newer model of the same car. I got $9000 cash back on the 2010 and stepped into a brand new 2015 also at 0 Percent.
And that’s probably going to be my game for the rest of my life. Every 4-5 years I’ll sell my car while it’s still worth a lot and I’ll step into a brand new one and will never have a car more than 4 or 5 years old.
Also I stepped into the new car at the same payment as the previous one so it’s like I just keep paying 286 a month forever, then after 4 years I get 50-75% of that loss back. In the long run it’s like I’m only paying for 60% of 1 car.
Of course this tactic only works if you care for your car and drive low miles. E.g. in 4.6 years I only put 54,000 miles on the car driving it back and fourth to work and an occasional trip to the beach (occasional = once a year). Keep good service records, have zero accidents, and keep the car clean and free of salt’s and grimes.
People that do this is why used cars even exist. You know when you drive by a dealership and you see that 2013 Corolla sitting there with 47,000 on the odometer and a 13$k price tag? That’s someone doing the trade in 0 percent tactic.
Another flip side to this tactic is you can trade up. For example, say instead of taking a cash back check on my car for $9000 I had used it as a down payment on a Scion FRS. I had a corolla at $17,500 (new) and the frs is $26,000 (new). So if I had wanted to I could have put the $9000 from my trade down on the FRS bringing it down to 17,000 which would make the new FRS the same price as what I paid for my 2010 corolla. Meaning I could have walked into the FRS for the same payment (286 a month) at zero percent. Then say I drive that for 4.6 years and go in and trade it in and get 15,000 for it (worth more) on trade in. I could trade up again (maybe into a Supra if it’s out by then).
But trading up has side costs, higher insurance and higher taxes.
There is no way that you get 50-75% of your purchase price back after 4.6 years. You would be lucky to get 40%. I currently have a 2012 ford fusion that was 25000. Going trade in rate is 8500-9500 and I haven’t even hit 4.6 years. What u are missing in your example is that you are using the dealers negotiations as car value. Many have unannounced dealer rebates and incentives, especially Chevy.The msrp is usually exaggerated 10-15% on the vehicle’s window(msrp). The more expensive the car the more larger number they give you for your car. Service records mean very little. They use interest rates and length of loan in every transaction to get you. Dont believe me then think of the last deal you had in front of you. They start by offering you vety little for your trade and usually put down a high payment. That is because they attach a higher rate to that quote and show you 36 and 48 months. Then they will come back and give a modest increase on your trade but extend the loan 6 months. It gives the illusion that they are really lowering the cost, but they arent. As u play the game wait until u get the term and interest you desire. Then haggle over the proice of your trade. Look at eBay to find out what your car is worth. Never look at kbb or Edmund’s. Those prices are inflated and u will never come close to getting that value.BTW, have you ever seen a crappy looking dealership? Answer is probably no. Heed my advice, the dealer will make 5000-7500 off each transaction with you. It is a numbers game and they always win.you are way better off buying a new car and running it until it falls apart. I have done this for a living for a long time and know it well.
Forgets to mention that the term of the loan is extended every time. You owe for a long time – they own you.
Car salesman, right?
This method also never gets you out of having a car payment. I haven’t had a car payment in 5 years.
You’re perpetually spending money on new vehicles every few years, which although sounds fun on the surface – means you’re constantly in debt?
So many things wrong with this logic lol. You’re not taking into account that after you pay off your car loan you can keep using it. It doesn’t just vanish once you’ve paid it off…
No, you are totally leaving out negative equity which every car will have because every car depreciates…..that is how people get into massive debt, they go to trade in while still owing and run unto thousands of negative equity…..
Can’t you first inquire what credit score is required for the 0% finance offer, before going to Dealership. That way you’re not disappointed after you emotionally “bought the car”, and then have to walk away ?
Yes, and you should do exactly that. Our point is that you should be ready to find that the threshold for 0 percent is high – you need excellent credit to get. Either way, you should know your score before you go to the dealership.
We just bought a new car with 0%interest for 84 months. Thanks for the infos., just want to solidify that I am not paying hidden interest on a new car.Some sites says to avoid 0% interest with longer loans on new car payment.
Zero percent is zero percent. We usually advise buyers don’t finance longer than 5 years, but in your case it’s not costing you anything extra. For fun, you should add up the cost of a 2.9 percent loan and see exactly how much money you’ve saved.
Wow.Thanks!This probably the most easy to understand info on 0% Financing I’ve come across.