The ins and outs of 0% car loans

A car buyer’s dream or a deal too good to be true?

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

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

What’s the catch?

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 the 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 money 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 many reasons dealerships offer zero-interest car loans. 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 clear inventory. By offering a 0% car loan, they can get rid of the cars that have been on the lot for 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.

But if you’ve been approved for a 0% car loan from a dealership, odds are good that you have great credit. This means you’ll likely be able to score competitive deals with a private lender as well.

0% car loans vs. rebates

Dealerships will often give the customer the option of a 0% car loan or a cashback rebate to be used toward the purchase price of the car. The 0% financing offer is usually the better option, though you should crunch the numbers just to be sure.

Where can I find 0% financing?

The most common place to find 0% financing is 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 specific car dealer or manufacturer in mind, you might want to start your search there.

Do I qualify?

Despite what some car ads appear to promise, you generally can’t qualify for 0% financing unless you have excellent credit, typically with a score of 700 or higher. You also might have trouble qualifying if you already have a lot of debt obligations compared to your income.

To avoid feeling like you were lured into a dealership with the promise of 0% financing that you weren’t eligible for, try calling the dealer ahead of time to make sure you qualify.

Don’t qualify for 0% financing? Compare other car loan options

Updated February 21st, 2020
Name Product Filter Values Minimum credit score APR Loan term Requirements Car Loans
Varies by network lender
Varies by lender
Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
SuperMoney Auto Purchase Loans Marketplace
Varies by lender
Varies by lender
Fair to excellent credit, an income source, US citizen or permanent resident, 18+ years old
Find an offer and get rates from competing lenders without affecting your credit score.
CarsDirect Auto Loans
Varies by network lender
Varies by network lender
Must provide proof of income, proof of residence, and proof of insurance.
Save time and effort with this lending service specializing in beginner-friendly or subprime car loan.
Auto Credit Express Car Loans
Varies by network lender
Varies by lender
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.
Get connected with an auto lender near you, even if you have bad credit.
Monevo Auto Loans
3.99% to 35.99%
3 months to 12 years
Credit score of 500+, legal US resident and ages 18+.
Quickly compare multiple online lenders with competitive rates depending on your credit.
LightStream Auto Loans
Good to excellent credit
2 to 7 years
Good or excellent credit, enough income or assets to afford a new loan, US citizen or permanent resident, 18+ years old
Quick car loans from $5,000 to $100,000 with competitive rates for borrowers with strong credit.
LendingTree Auto Loans
Good to excellent credit
Starting at 3.09%
Varies by lender
18+ years old, good to excellent credit, US citizen
Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.

Compare up to 4 providers

What are the benefits of 0% financing?

When it comes to 0% financing, there are a few aspects that may work in your favor:

  • Pay off your loan faster. Zero-interest financing typically comes with shorter loan terms, meaning you’ll likely pay off your car faster than the average five to seven years.
  • No interest. Your payment goes directly toward the principal of the car.
  • Optional extras. You may be able to roll the cost of alloy wheels, a leather interior, a sunroof or any other luxury items into the financing.

Can I get a 0% car loan with no down payment?

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.

Is 0% financing a bait-and-switch sales tactic?

Some dealerships use it to draw in buyers, but 0% financing is real — provided you qualify. Most borrowers won’t be able to get a 0% car loan, but those with high incomes and impeccable credit could walk away with no interest due on their car loan.

Before you set foot on a car lot, you should know your credit score and already have an idea of the interest rate you could get by applying for preapproval. And even if you don’t quite meet the requirements necessary to get an APR of 0%, you may still qualify for a below-market rate. Just be sure you compare loans from banks and other lenders first. This way, you have more negotiating power with the dealership, which can potentially score you lower rates.

5 tips to make the most of 0% financing

Here are a few strategies you can use when buying a car with 0% financing to get the most bang for your buck:

  • Keep your loan under five years. 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.
  • Up the 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 to own the car faster.
  • Get preapproved. Getting preapproved 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.
  • 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.
  • Opt for an extended warranty. Although an extended warranty can add a little more to your car’s overall cost, it can be worth it for the peace of mind. And since you have a 0% APR, you won’t have to pay interest on that little added cost.

What not to say to a car salesperson

Bottom line

Before you lock yourself into 0% financing at the dealership, compare car loan offers from banks and private lenders to see if they offer terms that are better suited to your financial situation.

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