When Is 0% A Good Deal
Zero percent financing is a good deal if you can afford the loan.
Its also a good deal if you 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, its always good to do your homework ahead of time to avoid buying a car and taking on debt on an impulse. That is a recipe for buyers remorse, and you could get stuck hating your new vehicle and hating your new loan even more.
If youve been planning for a new car purchase and found a 0% financing deal that you qualify for and is friendly to your budget, its an excellent way to borrow money with no interest.
Is 0% Apr Worth It
0% APR financing can save you a lot of money on your car purchase since you’re not paying any interest on the car loan. The average price of a car is around $36,000 and with 0% financing over 60 months, monthly payments come out to around $600. If we applied the average APR of 4.96%, the monthly payment on the vehicle rises to $678 a month, or $4,700 in interest payments over 60 months.
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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Apply For Auto Loans From Multiple Lenders
Once youve checked your credit, its time to look at auto loans and lenders, which can be categorized as:
Large national banks, such as Bank of America or Capital One.
Local community banks or credit unions.
Online lenders that only provide auto loans.
Dealership financing, or through automakers’ captive lenders.
Youll want to compare quotes from the first three types of lenders first, even if you plan to take dealership financing eventually. Your own bank or credit union may give you a preferred rate, especially if you agree to automatic loan payments from a checking account there. You can also compare auto lenders online.
If you want to buy your car from a private party, rather than a dealer or broker, make sure thats allowed by each lender you consider seriously. Some restrict where you can buy your car.
Before you apply for a loan, you should also take time to learn the car financing language you will encounter.
What Is A 0% Apr
When you take out a vehicle loan, the lender will typically charge you interest in exchange for financing. Interest and fees, after all, are the primary ways that lenders make money. As you repay the loan, you reimburse the lender for the money it paid the auto dealer on your behalf. The interest you pay helps the lender earn a profit.
With a zero APR auto deal, however, you essentially borrow money for free. Your monthly payments reimburse the lender for the money it paid the auto dealer, but no extra money from your pocket goes into the lenders bank account.
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What 0% Interest Means
Its important to knowthe basics of car loans when you look at zero percent financing. When a car buyer takes out an auto loan, theyre borrowing money from a lender to pay for the car. In order to finance the vehicle, the borrower must pay the lender a fee in order to use their money. This fee is known as interest, and is expressed as a percentage rate.
The interest rate you’re able to qualify for depends on your credit score. Generally speaking, the higher the credit score, the lower the interest rate. Therefore, how much interest charges you end up paying has a lot to do with your credit score, and financing a car is typically less expensive when you have good credit.
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.
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When To Avoid 0% Financing
Zero percent financing is a bad deal if you cant 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 dont 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, dont rush into a car loan that you cant afford just because of an attractive 0% offer. Automakers run deals like these all the time. So theres nothing wrong with taking your time to give some extra thought and planning for your next car purchase.
Another thing to keep in mind: What can you afford as a down payment? If you get 0% financing on a new car loan but make a low down payment, then youll be upside down on your new vehicle the second you drive it off of the lot, and your new car becomes a used car.
Being upside down on a car is never a good thing, and it can mean you need gap insurance. This more expensive coverage pays the difference on 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.
Use Your Loan Offer To Set Your Budget
Your preapproval offers will state the maximum amount you can borrow, but thats not the price of the car you can buy. You should allow an additional 10% to cover taxes and fees. Use an auto loan calculator to design your loan. Put in your down payment, trade-in value of your current vehicle and lending terms to find the right monthly payment that fits in your budget.
If that payment is too much for your comfort, remember that the preapproval offer is just a limit you can borrow much less if you choose. Its far more important to be able to make your loan payments comfortably, even if the bank says you can afford more.
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Getting Approved For A Car Loan
Most dealerships and auto lenders can tell you fairly quickly whether or not youll qualify for a loan, especially if youve already prepared your financial information before walking onto the car lot.
Still, going into a dealership with a preapproved letter from your bank or credit union is among the best strategies for buying a car with bad credit.
If you cant get preapproval or need financing at the dealership, carefully look over the terms, conditions and fees before signing the loan. Not every auto lender through a dealership is fully regulated by the federal government like a traditional bank or credit union, so take your time to look over the terms.
And dont be afraid to walk away if the terms seem too costly or feel like a gotcha moment. There is often another auto dealer or lender nearby that will also work with bad credit.
Search Manufacturers Websites For Deals
The car manufacturers website is a great place to begin searching for 0% APR interest car deals on the car you want. These sites may also offer helpful information such as the specific conditions to qualify for the deal, the loan terms, the loan amount, what dealerships could offer it, as well as the deals expiration date. Going to the manufacturers website is a great way to start researching what to expect out of a car financing deal, especially if you already have in mind the model of vehicle you want to purchase.
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How To Finance A Car At 0% Interest
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Paying no interest on a new car loan may sound almost impossible. But it is possible for people with very strong credit. And its something you should definitely consider, because over the life of the loan it can save you hundreds of dollars.
Rates as low as 0% are only available from the captive finance companies, which are the lending arms of the carmakers. So, Ford Motor Company uses Ford Motor Credit Company to lend money to shoppers who want to drive a Ford. And each carmaker has its own captive lender.
The car companies use the low financing to attract buyers, and they make the profit on the cars rather than on finance charges. This doesnt mean you have to get a loan from the captive finance company car dealers are happy to accept money from any institution but this is where you can find the lowest rates.
Tips To Securing A Good Financial Deal For Your Next New Vehicleon Your Terms
Some consumers will spend days making sure they get the lowest price on a car but neglect to shop for the best auto loan.
That’s a mistake.
Car shoppers who don’t have financing in place when they visit the dealership to buy are vulnerable to whatever terms the dealer offers, which might have a much higher interest rate than they could get elsewhere. And because dealers often mark up the interest rate of a loan above what shoppers actually qualify for, those buyers could wind up spending hundreds of dollars more over the course of the loan.
Below are CR’s tips on what to look out for when getting a car loan.
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Get Preapproved For An Auto Loan
Once youve narrowed your search to a few lenders, its time to request interest rate quotes and compare offers. Getting lenders to compete for your business helps you get the best rate. Also, because lenders weigh factors in your credit report differently, car loan interest rate offers can differ widely.
When applying to lenders, you can be pre-qualified or preapproved for a loan. These are different, and it’s important to know what each one means.
Pre-qualification provides an estimate of the rate and loan amount you might expect to qualify for, based on a limited amount of information the lender has about your credit history. Pre-qualification requires only a soft credit pull, so it will not lower your credit score. However, the estimated rate you are given could change considerably once a full credit check is done.
Preapproval is a step up from pre-qualification. It requires a hard credit pull, temporarily lowering your credit score. Because the lender has more information about your credit history, and personal information you provide, the estimated rate should be closer to the final rate you receive upon loan approval.
If youre really ready to buy your car, getting preapproved for an auto loan offers several advantages, such as giving you more negotiating power at the dealership and protecting you from marked up rates.
How To Get A Zero Interest Car Loan
Modified date: Jun. 27, 2021
Editor’s note –
If youre looking at financing a vehicle, youve probably already done the math. If so, you know that you can end up spending hundreds, or even thousands, of extra dollars in interest charges over the cars repayment.
No matter where you get your loan or how long your repayment terms are, the APR you snag really matters. So, how can you save yourself some money and get a zero percent interest car loan?
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How To Qualify For 0% Interest On An Auto Loan
In fact, 0% interest auto loans only account for 9 percent of in-house financing transactions, notes Edmunds.
But keep in mind that the minimum credit score varies by auto manufacturer, which means you may qualify for a zero-interest loan with one manufacturer and not the other.
So, its best to inquire with the financing department at a dealer near you to learn more. They should be able to provide more information about the qualification criteria without running your credit.
You Might Be Forfeiting A Better Deal
Typically, you cant receive both reduced rate financing and a cash rebate when you buy a car, so you may have to choose one. Manufacturers cash rebates can range from a couple hundred to a few thousand dollars. The well-known auto research website Edmunds found that the cost of incentives that automakers pay to attract customers was around $2,300 per car industrywide, which includes cash rebates and cost of reduced financing.While a 0% loan may sound appealing, a cash rebate might save you more money. If you buy a $20,000 car that has a $2,300 rebate, you are really paying $17,700 plus interest. If the interest rate for a five-year loan is 2.7%, which was the average rate at credit unions toward the end of 2015, then you would pay a total of $1,242 in interest. That would bring the cost of the car plus interest to $18,942, saving you $1,058 compared with what youd pay with a 0% loan.You may want to check the auto loan rates at local lenders too, since you might be able to get a low rate and pick up a rebate when you negotiate with the dealer.
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When Is 0% Financing A Good Idea
If you qualify for a 0% financing loan, you can easily save a ton of cash in interest payments over the life of the loan.
Make sure you crunch the numbers to be sure you can easily afford the monthly payments on a no-interest loan. If the numbers add up, a 0% financing loan can be a great way to save money on a new set of wheels.
Contact Local Dealerships To Make Sure A 0% Apr Car Deal Is Still Available
Once youve done your research on the different 0% interest deals out there, contact your local dealership to make sure the offer applies to that dealership and is still available, especially if there is limited stock associated with the deal. You might also be able to learn more details about the terms and conditions of any 0% APR car deals over the phone or in person.
Once youve confirmed the offer is still available, set up an appointment to test drive the car and talk to a salesperson. Car financing deals change often. If youre getting ready to buy a new vehicle, you should check what deals are available often to make sure you dont miss the vehicle youre looking for.
After you find a vehicle and arrive at a dealership, they may need to confirm your credit to make sure youre eligible for a 0% financing car deal. If youre approved, you can sign your papers and drive home in your brand-new car knowing that you wont owe any interest.
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How To Get 0% Car Financing In Canada
To get a 0% car loan in Canada, youll need to do your homework to make sure you get the best deal. Follow these steps to get started: