How Does A 0% Apr Car Loan Work
Zero percent APR car loans are auto loans with no interest rate. This means you can finance a new vehicle purchase, and 100% of your monthly payment will go toward the principal balance of the loanthere are no interest charges whatsoever.
Car dealers usually offer 0% financing on new cars only, and you typically need to have a very strong credit history to qualify for such an offer.
When Is 0% Financing A Bad Idea
If you can’t afford the loan to begin with, then 0% financing won’t help you at all. 0% won’t make the car any cheaper, in fact it may do the opposite. Since the dealership only profits from the actual sale, they will rarely agree to bargain down the price and often waive other incentives, like cashback rebates. Stripping away rebates helps them make their money back. Because of this, a no-interest loan could cost more than the savings youd get negotiating on price. Since most 0% offers disqualify you from rebates, a car you were looking at before the offer could have its price tag increased by $1,000 or more without the incentives built-in.
Another point to consider before committing to a 0% financing loan is the term of the loan. Some of these loans feature longer terms than traditional auto loans, as much as six years. Six years is a long time to be paying for a car. Your needs could change before then. On the other side of the coin, some 0% financing loans are expected to be paid off within four years which would bump your monthly payment amount way up.
Lastly, if your current car is paid off and runs fine, yet you still feel tempted to take advantage of the 0% financing offer while it lasts do some soul-searching and ask yourself if you’re really ready to commit to that kind of debt again. Not having a monthly car payment gives you more room to save. Are you willing to sacrifice or delay other financial goals for a new car you don’t really need?
Check Your Credit History To See If Youre Likely To Qualify For 0% Interest
Since dealerships are looking for certain buyers when offering 0% car financing deals, its important to first check your credit history to see if you may qualify. You can use Chase Credit Journey to check your credit score for free. You are also entitled to a free annual credit report from annualcreditreport.com, the government-authorized website for free credit reports.
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% Apr Loans Vs Rebates
Manufacturers often present 0% financing offers alongside offers of higher-rate financing with a cash rebate .
Mike Gnitecki bought a new Toyota Prius C last month and says, I had a choice of either a 0% APR loan or $1500 cash back from Toyota . The Toyota dealer told me that Toyota would only let me choose one of these, not both.
Though the auto manufacturers and models involved differ from year to year, and even from one zip code to the next, youll very often be able to find a 0% APR car deal or cash incentives in your area. Even when you cant, you should still be able to find a new-car financing deal that works for you.
The main takeaway is that you usually have a choice. You can pay a higher price for the car and pay no interest, or you can pay a lower price but more in interest.
Interest Free Car Finance Alternatives
Leasing, otherwise known as Personal Contract Hire , is a form of long-term rental. There are no APR rates attached because you’re not borrowing any money – you’re just renting the car.
Leasing offers an elegant short-term solution to 0% APR car finance. It’s especially useful if you don’t want to own the car, don’t want to keep a car for a long time, or don’t have a strong enough credit score to be accepted for 0% APR finance.
Halal car finance technically offers interest free cars. But there are some pretty big caveats.
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Pros And Cons Of Zero
Pros
- 0% interest. Paying no interest on your car loan can save you hundreds or thousands of dollars in the long run .
- One-stop shop for financing. Dealerships offer 0% interest car loans so you can get financing and drive off the lot in your new vehicle with a single transaction.
- Faster repayment. Youll usually be able to pay 0% interest car loans off faster than you would with a traditional car loan .
- Lets you upgrade your car choice. You may be able to afford a more expensive vehicle or luxury upgrades such as a sunroof or alloy wheels with a 0% car loan.
Cons
- Only available from dealerships. 0% car loans are typically only offered by dealerships, which means you cant get them from the bank or another lender.
- More limitations. You may only be able to get financing for certain kinds of vehicles with 0% car loans, such as those that the dealership is trying to move out of its inventory.
- More difficult to qualify. You can only qualify for a 0% interest car loan if you have good to excellent credit and a high income.
- Higher monthly payments. 0% interest car loans often come with shorter terms to reduce the risk that youll default .
- Risk that youll pay more. You could end up paying a higher price for your vehicle to make up for the lower interest rate .
- May be a limited offer. You may only get 0% financing for a portion of your loan amount or as an introductory offer for a limited amount of time.
Can You Tell Me How To Get A 0% Apr Car Loan
The best place to start is right here. If you havent already read the article above, please do so now. Whether you want to finance a Chevrolet or Chrysler pickup truck, a Mitsubishi Mirage G4, a Volkswagen Atlas Cross Sport, a GMC Terrain SUV, a Hyundai Sonata, or one of the models offered by Nissan, knowing how to get the best financing will make your car purchase a better deal, saving you money in the long run.
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Video Answer: Zero Percent Financing Don’t Waste Your Money
When the economy slows down, interest rates are lowered to incentivize businesses to invest and hire more people, and encourage more spending in general. This can also impact auto loan interest rates, since theyre tied to the prime rate the rate that banks charge each other which influences rates offered to consumers.
Calculating Auto Loan Interest Auto loan interest can seem a bit complicated but it does not really have to be. The interest will most likely be calculated upfront and fixed into your monthly payments. This ratio of interest to principle might mean any of the following depending on the lender:
Pretty simple, huh? Well, there are some other considerations. For instance, no matter which method you select, you can also deduct the business portion of the interest on the car loan, state and local property taxes, parking fees and tolls. Related: Calculating self-employment taxes Leasing a vehicle
Can I negotiate the interest rate on an auto loan with the dealer? Yes, just like the price of the vehicle, the interest rate is negotiable. The first rate for the loan the dealer offers you may not be the lowest rate you qualify for.
Shop Around For Additional Financing Offers
Why so? Well, it gives you other low-interest financing options in case you are a few points shy of the minimum credit score for zero-percent financing. Youll also have bargaining power as the dealer will try to undercut other offers on the table to get you the best deal and earn your business.
And dont worry about your credit scores taking a hit from multiple applications. According to myFICO, auto loan applications made within a 30-day window only count as a single inquiry if you find a loan that suits you within this period.
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Will I Get Accepted For 0% Finance
Customers are more likely to get accepted for 0% Finance if they have a strong credit score. In addition to application details, financial lenders will use information from credit reports to determine whether to accept the finance application. Free credit scores can be accessed from companies such as Experian, Equifax and Transunion to give a rough idea of how likely lenders are to offer finance.
Young drivers may find it more difficult to be accepted for finance unless they have a strong credit history, as lenders are unable to determine the ability of a customer to make repayments.
It is possible that customers will end up paying higher monthly repayments if opting for 0% Finance as they are can sometimes be limited to a shorter period of time compared to other finance options. However, this is not always the case.
% Financing Vs Cash Rebates
If you feel like youve negotiated a good price on the vehicle you want to buy, as well as your trade-in, and you qualify for the 0% APR car deal, then there may be nothing wrong with taking the deal. If there are other incentives offered as a secondary option to your 0% financing rate, then the choice may be a little harder. In most cases, the dealer may offer you a rebate incentive in place of the 0% APR offer.
If you must choose between a 0% financing offer and a rebate, it is almost always better to take the rebate, especially if you dont plan to keep the car for the full length of the loan term.
It really comes down to the math, according to Greg Bohrmann, board member of the AAA Fair Credit Foundation, who provided this example.
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Why Would A Dealership Offer A 0% Apr Car Deal
Dealerships usually offer 0% APR car deals to help them sell more cars. Based on business objectives, seasonal promotions or the need to move inventory, absorbing the costs associated with 0% APR offers may make sense to the manufacturers bottom line, allowing them to sell more cars and still make a profit.
Get A Copy Of Your Credit Reports
Doing so will give you an idea of where you stand so you wont be caught off guard when applying for loans. Keep in mind that the score lenders see may be different. Also, if your score is on the lower end of the spectrum, it may be worthwhile to work on improving your score before applying.
This guide shows you how to get a copy of your credit reports free of charge. And if you dont know how to find your credit score, this guide provides additional guidance.
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How To Find 0% Financing
If a vehicle isnt selling quickly enough, the captive finance company offers 0% financing as a car-buying incentive to entice shoppers to choose that model. Usually, these no-interest offers are available for only a month at a time.
Most 0% financing deals are widely advertised in newspapers and on television. However, you can go to a carmakers website and search for terms such as incentives and offers or special offers. For example, Ford lists all vehicles that have incentives including 0% financing. Click on any car and youll see all the offers available: special finance rates, cash rebates and lease specials. Car site Edmunds.com also lists incentives from all the manufacturers and provides some details on different loan terms.
If the car has several incentives available, such as 0% financing or customer cash back, how do you decide which is better? It depends on a number of factors, such as how long youre planning to finance the loan. To figure out which would save you more money, run each scenario through NerdWallets auto loan calculator.
Is There A Catch
Strong credit is required, as weve mentioned, but you also wont find 0% APRs on just any car on the lot. Here are some of the limits of 0% APR financing:
- New cars only. Its worth noting, however, that you can find near-zero APR deals on certified pre-owned vehicles.
- Limited choice. Automakers offer the best deals on the models that they want to sell quickly based on supply and demand. You may be able to obtain 0% APR on one model but not another, depending on when you go car shopping. Tell your salesperson that you only want to look at cars that are available for the 0% APR financing program.
- Shorter loan terms. The dealer may be offering a 0% APR on a 48-month loan, but a 1% APR on a 72-month loan. In general, you may have to choose a relatively short term for the best deal. Holiday shopping deals are an exception, with manufacturers offering 0% financing for longer.
What else to watch out for in a 0% APR car deal
If you do qualify for the 0% APR loan, keep in mind that dealers will still aim to make money by selling add-ons, such as extended warranties or guaranteed auto protection insurance and this becomes one of the major ways they can take you for a ride. Make sure you negotiate the actual price of the vehicle as well as add-ons, and dont just take the first deal offered. If the dealer says add-ons are required for the 0% financing, ask to see the policy in writing.
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Can Anyone Qualify For Zero
Dealerships love to offer 0% financing as a way to get customers in the door, but it can actually be quite difficult to qualify for one of these loans. They are typically only offered to buyers who have excellent credit. The only people who get the deal are the ones the dealership thinks will pay on time or maybe even early. By being choosy about who gets the deal, carmakers can ensure their temporary discount is low risk and profitable.
Come Up With More Money Down To Reduce Amount Borrowed
It’s not rocket science folks, the more money you borrow, the more interest you’ll pay. Always look for ways to put down more money on your car so you don’t have to borrow as much and you your monthly payments will be lower. Sell some expensive collectibles, comics, artwork or electronics. Whatever is lying around your house or in the attic or garage might have value. If you’re not using it, sell it and use the cash for your down payment.
We have always warned consumers to put down at least 20% on a new car to avoid being upside down on the car loan. We advise the minimum amount to put down on a car should be 20%. If you don’t have that amount to put down, then don’t buy the car until you do have the 20% to put down.
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Can You Get Zero
Used car dealers highly motivated to close a sale may agree to pay the interest for you when you take out a car loan. Since they wont want to spend any more than necessary, they may require that you make a partial payment upfront to reduce the total amount financed. They may also be reluctant to allow a longer-term loan, such as one running 72 months rather than 60 months.
How To Find 0% Interest Deals
Oftentimes, there are several 0% interest rate deals going on at once, but you may have to do a bit of digging to find them. Not seeing or hearing an ad doesnt mean that a deal isnt available.
A quick online search on the auto manufacturers website on the page where promotions are listed may be the easiest way to spot offers.
But dont stop there. Also, explore special financing promotions offered through local dealerships as they may be running their own zero-percent interest deal with less stringent qualification criteria.
You can also view a comprehensive listing of current 0% interest promotions on Edmunds, US News and World Report, and CarsDirect.
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Get Your Credit In Order
Before you head to the car dealership, you need to check your credit report and score. Your credit score will determine your eligibility for 0% APR financing. Your is used to calculate your score, so you should check it carefully to make sure there are no errors. If something on your credit report looks incorrect, you need to dispute the mistake before submitting a car loan application
Lenders dont usually share what credit scores are necessary to qualify for a 0% APR auto loan. Still, credit scores of 700 and higher are usually considered quite good and are your best chance at getting approved.
If your credit is not 700 or higher, you should work to improve your score before applying for 0% APR financing. You can improve your credit by:
How 0% Auto Loan Financing Works
Zero-interest auto loans are offered by auto manufacturers to entice customers to buy a particular vehicle. These deals are designed to sell high volumes of select makes and models. But its highly probable that youll have to finance the vehicle in-house to snag the deal.
The primary benefit of 0% auto financing lies in the opportunity to save a bundle on what wouldve otherwise been spent on interest.
You also get the luxury of making payments over time, which allows you to maintain a healthy cushion or even invest the money so compounding interest can work in your favor.
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