0% car loans: What dealerships don't want you to know | finder.com

Is a 0% car loan really a good option?

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The 0% car loan: A car buyer’s dream or a deal too good to be true?

When shopping for a new car, you’ll come across dealers advertising car loans with extremely low interest rates — sometimes even 0%. This type of dealership offered loan is generally a sales tactic.

Before signing the dotted line and driving off the lot, there are some things you need to know about taking a 0% car loan.

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    What’s the catch with a 0% car loan?

    At first glance, a car loan with a 0% APR is exactly as it appears, you purchase the car at the agreed on price, and then make monthly payments on the principal of the car with no interest. However, keep these points in mind:

    • 0% interest may only be offered for part of loan term.
    • To be approved, you’ll need spectacular credit.
    • Negotiating the car price will be difficult.
    • 0% may only be offered on some cars.
    • You may not get as much for your trade-in vehicle.
    • The loan structure will likely be set in stone.

    Why would a dealership offer a 0% car loan?

    There are different reasons dealerships offer zero interest. One reason is to get potential buyers in the door. Once a buyer has entered into a salesman’s territory, the sales battle has begun.

    Another reason is to move inventory. By offering a 0% car loan, they can get rid of the cars that have been in the lot too long and make a profit — even without interest.

    Is a 0% car loan cheaper than a regular car loan?

    If you make all of your payments on time and get a competitive price on the car, it can be. However, 0% car loans tend to have shorter terms resulting in higher monthly payments of a few hundred dollars.

    But if you’ve been approved for a 0% car loan from a dealership, odds are good you have great credit. You’ll probably be able competitive deals with a private lender.

    0% car loans vs. rebates

    Dealerships will often give the customer the option of a 0% car loan or a cash back rebate to be used towards the purchase price of the car. It’s the consumers responsibility to figure out what option will be cheaper when all is said and done.

    Where can I find 0% financing

    The most common place to find 0% financing through a dealership — banks and online lenders generally aren’t as worried about moving cars out of the lot. You can often find deals advertised online on dealer or manufacturer websites. If you have a place or carmaker in mind, you might want to start your search there.

    Can I qualify?

    Despite what some ads appear to promise, you generally can’t qualify for 0% financing unless you have good or excellent credit. You also might have trouble qualifying if you already have a lot of debt obligations compared to your income.

    Some customers feel that they were lured into a dealer with the promise of 0% financing that they weren’t eligible for. To avoid this, try calling the dealer ahead of time to make sure you’re eligible.

    Alternatives to 0% dealer finance

    Even if you can’t secure a 0% car loan, there’s plenty of car loan options — compare alternative financing below.

    Rates last updated November 19th, 2018

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    Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
    Name Product Product Description Min. Credit Score Term of Loan Requirements
    car.Loan.com Car Loans
    Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
    300
    Varies by lender
    Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
    Auto Credit Express Car Loans
    Get connected with an auto lender near you, even if you have bad credit.
    300
    Typically 3 to 6 years
    Must be employed full-time or have guaranteed fixed income of at least $1,500/month and be a current resident of the US or Canada.
    LightStream Auto Loans
    Quick car loans from $5,000 to $100,000 with competitive rates for borrowers with strong credit.
    Good to excellent credit
    Flexible terms
    Good or excellent credit, enough income or assets to afford a new loan, US citizen or permanent resident, 18+ years old
    RateGenius Auto Loan Refinance
    Connect with a network of over 150 lenders to refinance your car loan.
    510
    Varies
    Income of $2,000+/month, vehicle has less than 150,000 miles, no older than 10 model years, loan balance is at least $10,000, debt-to-income ratio: less than 50%.
    LendingClub Auto Refinancing
    Lower your monthly car payments and save on interest through a fast and easy online application process.
    Fair or better credit
    Minimum of 2 years
    Car must be less than 10 years old with fewer than 120,000 miles. Current loan must have a balance between $5,000 and $55,000 and at least 24 months left in its term.
    MotoRefi Car Loan Refinancing
    A car loan connection service for borrowers looking to refinance.
    525
    1–6 years
    Must have an income of at least $2,000/month and have a vehicle with less than 100,000 miles.
    LendingTree Auto Loans
    Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.
    Good to excellent credit
    Typically 1 to 7 years
    Must be a US citizen and 18+ years old. Must have good to excellent credit.

    Compare up to 4 providers

    What are the benefits of 0% finance?

    When it comes to car finance, there are a number of options with 0% loans that may work in your favor. When comparing loans, consider:

    • Shorter loan term. With shorter loan terms comes larger monthly payments. You’ll likely pay off your loan in just several years instead of the average five to seven.
    • No interest. Your payment goes directly towards the principal of the car.
    • Optional extras. With a 0% car loan you may be able to roll the cost of alloy wheels, leather interior, sunroof or any other luxury items into the finance.

    Can I get a 0 down car loan?

    It’s possible to get a car loan with no down payment — but it might not be the best idea. That’s because there’s a higher risk of ending up with an upside down car loan, where you owe more than your car is worth. If possible, try to save up for a few months instead.

    Did you know?

    4 tips to make the most of 0% financing

    There are few strategies to use when buying a car with 0% financing that can help you use your loan as efficiently as possible, they are:

    1. Keep your loan under 60 months. There are longer car loans on the market that may seem attractive because of the low monthly payment, however, you’ll pay loads more in interest and by the time the car is paid off, it will have depreciated in value greatly.
    2. Make a large down payment. By making the largest down payment your budget allows, you’ll lower the principal and may be able to take on a shorter loan term in order to own the car faster.
    3. Get pre-approved. Getting pre-approved for a loan will not only give you bargaining power when shopping for a car, but you’ll also know exactly how much is in your budget.
    4. Pick the car you love. Don’t rush into buying a car just because you’ve been offered a great financing deal. If the car isn’t the right fit for you, keep shopping so you don’t make a purchase you’ll regret later.

    Bottom line

    Before you lock yourself into 0% car loan, research banks and private lenders to see if they can offer you a car loan with terms that are more suited to your financial situation.

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