0% APR Car Deals: What’s the Catch?
- A 0% APR car deal means you pay no interest or lender fees, which can save you thousands of dollars over the life of your loan.
- These deals typically require excellent credit and may be limited to specific new vehicle models, so not every buyer or car will qualify.
- A cash-back rebate from the dealer may save you more money than a 0% APR offer, so compare both options before deciding.
- Even with no interest, make sure the monthly payment fits your budget, especially since 0% APR loans can come with shorter repayment terms and pressure to buy add-ons.
Who doesn’t like the idea of borrowing money for nothing? Auto manufacturers and dealers dangle 0% APR car deals as an incentive for consumers to buy new vehicles. In theory, this can save car buyers thousands of dollars in interest and fees throughout the loan term.
But a 0% car loan isn’t always the best deal. You may be able to save more money with other incentives, such as a cash rebate or by choosing a different new or used car.
What is a 0% APR car deal?
A typical auto loan comes with an annual percentage rate (APR), which is the amount of interest plus lender fees that you pay for borrowing money. With a 0% APR car deal, you only have to pay back the principal and don’t pay any interest or fees to the lender.
In the table below, you can see the difference in the monthly payment and the total amount of interest paid for two different scenarios. With a 0% APR deal, thousands of dollars stay in your pocket instead of going to the lender. Essentially, you pay less to buy a car compared to one that carries an average APR on the loan.
| Average APR | 0% APR | |
|---|---|---|
| Loan amount | $50,326 | $50,326 |
| APR | 6.5% | 0% |
| Loan term | 60 months | 60 months |
| Monthly payment | $984.69 | $838.77 |
| Total interest | $8,755.16 | $0 |
Where to find car deals with 0% APR
You may be able to get 0% APR financing from car manufacturers’ captive financing arms — think: Ford Motor Credit, Toyota Financial Services, and Nissan Finance — when they’re trying to help sell inventory off dealer lots. For instance, these incentives may be used to sell overstocked inventory, move slow-selling models or clear out models from the previous year. In these cases, they’ll profit off the vehicles themselves instead of the financing.
While 0% APR financing offers can happen anytime throughout the year, depending on the manufacturer, these promotional deals only last a short time. You may be more likely to find 0% financing deals at the end or beginning of the year, as manufacturers clear dealer lots to make room for new models.
Watch manufacturer and dealer websites for incentive offers. Some auto sites like Carfax track monthly 0% APR car loans. Offers may vary by location, so check with your local dealer on the incentives in your area.
If you’re looking to finance a car, use our auto loan calculator to decide whether a 0% APR car deal is right for you.
How to qualify for 0% APR deals on cars
Keep in mind that 0% APR financing deals are typically only offered to “well-qualified buyers.” That means borrowers with an excellent credit score and a strong credit history.
In addition to your credit score, lenders will also consider other factors that reflect your ability to repay the loan, such as:
- Payment history
- Debt-to-income ratio
- Employment history
- Income
Eligibility requirements will vary by dealer, so you may have to contact the dealership to learn all the specific details.
Pros and cons of car deals with 0% APR
Pros
- Only pay the principal: You aren’t paying any interest or fees, so you could save hundreds or thousands on interest over your loan period.
- Reduced monthly payment: All else being equal, you can reduce your monthly payment since you’re only paying the principal without interest.
- Faster equity building: Since your payments go exclusively towards the principal, you can gain equity in your vehicle faster.
Cons
- Limited car selection: With a 0% APR deal, you may be limited to specific vehicles, not the manufacturer’s entire lineup. These vehicles may not have the features and options you want, or they may not fit your budget.
- Limited negotiation: The dealer likely won’t budge on the price for a vehicle with incentive offers. You may do better by negotiating a car price and using other financing options.
- Unnecessary add-ons: Since the lender won’t make any money on interest or fees, the dealer may try to push add-ons such as an extended warranty and GAP insurance.
- Limited repayment terms: A 0% APR auto loan may have limited terms — as short as 36 months in some cases, though not always. Make sure your budget can accommodate the payment, even without interest. Financing with a long car loan term instead can lower your monthly payment.
- Over budget: You may be tempted to buy a more expensive new vehicle just to score the no-interest financing. Don’t let the possibility of no interest or fees cloud your judgment.
0% APR car deals vs. bonus cash
Dealerships may offer bonus cash or a cash-back rebate as an alternative to a 0% APR auto loan. The rebate lowers the purchase price, which means you will borrow less money to buy the car. According to Kelley Blue Book, slow-moving vehicles are most likely to be backed with dealer rebates or cash.
In some cases, a rebate may offer greater savings than a 0% APR car deal, although monthly payments may be higher.
For example, let’s say that you’re buying a $30,000 car with a $3,000 down payment after qualifying for a five-year loan with a 5% interest rate. The dealer offers you the choice between a bonus cash incentive or a 0% loan.
You’re financing $27,000. The difference between a 0% loan and a 5% loan over a five-year loan term would be $3,571.40 in interest. So, if you plan to keep your loan for the duration of the term, you’d need a cash bonus of more than the $3,751 interest charges to make it worth it. If the dealer offered $4,000 as a cash bonus, you’d be better off taking that rebate.
In many cases, taking advantage of a rebate means that you will still have to use the automaker’s captive financing to receive the rebate, which may not offer a competitive rate.
To get a better rate, you can accept the rebate and then refinance your auto loan at a lower interest rate with a different lender if you qualify. However, taking out two loans in a short period of time could temporarily lower your credit score due to multiple hard credit inquiries.
While 0% APR financing and cash-back rebates are typically not bundled together, in some cases, auto lenders combine these deals on hard-to-move models.
If you’re shopping for a lower interest rate, use our auto refinance calculator to crunch the numbers and compare lenders.
When 0% APR car deals aren’t worth it
While 0% APR financing seems like a great deal, it’s not always the best option when you consider your budget and overall financial situation.
- You’d prefer a used car: With a 0% APR deal, you’ll likely have to purchase a new car, which could push you outside your budget if you were eyeing used models. Generally speaking, a used car often costs less than a new car.
- You can’t afford the car: Spending more than you can afford to get what seems like a great deal could put your budget in jeopardy. Even without interest, the monthly payments may squeeze out your other obligations. However, some incentive offers have long car loan terms — up to 60 or 72 months — which could come with lower monthly payments than short terms.
- Rebates offer better savings: In some cases, you may qualify for a rebate and a competitive interest rate from the manufacturer. This could result in a lower monthly payment and overall cost of ownership compared to a 0% APR deal.
Frequently asked questions
0% APR car deals can be worth it under certain circumstances:
- You’re able to get the 0% APR deal on the make, model and trim you were already considering.
- The 0% APR works out to the best deal, even after you’ve considered rebates or cash deals.
- You can afford the monthly payment after accounting for any required add-on purchases and a potentially shorter loan term.
That said, you may benefit more from other dealer incentives instead of a 0% APR.
Taking out a 0% APR loan won’t hurt your credit score more than other types of financing. That said, new loans will trigger a hard inquiry and the loan balance will impact your debt-to-income ratio. As a result, your credit score may decrease for a short period after you take out the new loan.
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