Car deals with 0% APR Do they really make sense? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by providing you with financial calculators and interactive tools as well as publishing quality and impartial content. We also allow users to conduct research and compare data for free – so that you can make informed financial decisions. Bankrate has agreements with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are advertised on this site come from companies that compensate us. This compensation could affect how and when products are featured on this site, including for instance, the order in which they may be listed within the categories of listing in the event that they are not permitted by law. Our mortgage, home equity and other home lending products. But this compensation does not influence the content we publish or the reviews that you see on this site. We do not contain the universe of companies or financial offerings that could be accessible to you. @VeraNovember/Twenty20

6 min read published March 02, 2023.

Writer: Michelle Black Michelle Black Written by Contributing writer Michelle Lambright Black is a credit expert with more than 19 years of experience. She is an author on a freelance basis and a certified credit expert witness. In addition to writing for Bankrate, Michelle’s work is included in numerous publications such as FICO, Experian, Forbes, U.S. News & World Report and Reader’s Digest, among others. Written by Rhys Subitch Editored by Auto loans Editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to control their finances by providing precise, well-researched, and well-researched data that breaks down otherwise complex topics into manageable bites. The Bankrate guarantee

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They are worthwhile if you are able to reduce your monthly payment. But you’ll need excellent credit to qualify. Be sure to keep both the cost-effectiveness as well as your eligibility in mind when driving around for a test.

What exactly is 0% APR? A zero percent APR basically means that you can borrow money for free. Your monthly payments reimburse the lender for the amount that it paid to the dealer, but no money from your pocket goes into the lender’s bank account. This differs from the typical approach, where the lender charges in exchange for financing. The fees and interest, after all, are the principal ways lenders earn money. Here’s an example of the difference in monthly expenses that a zero percent APR can bring compared to the more common APR. Average rate

0% APR

The amount to be financed

$27,564

$27,564

The term “loan”

60 months

60 months

APR

5.47%

0%

Monthly payment

$478

$418

Total cost

$28,704

$25,064

What exactly is 0% APR? How does it work? Financing a car interest-free almost seems too good to be true. However, these financing offers can be a tool auto manufacturers can use to make more sales. Loan providers that offer zero percent financing are referred to as captive finance companies and are connected to . A few examples of lenders that are captive include Ford Motor Credit, GM Financial, Nissan Finance, Toyota Financial Services and more. Therefore, if Ford plans to sell more F-150s because of overstock issues, it might offer zero-interest loans to a select group of borrowers via its own financing division. No-interest financing seems to be more affordable in the first place however it’s not always the case. When auto manufacturers offer 0 percent financing, they may try to make up for “lost” earnings in different ways. For instance, a dealership might try to convince you on the spot or using your car. Also, you may have to forfeit benefits such as rebates which would normally bring down your cost of purchase. What are the criteria to be considered for an 0% APR vehicle deal? Zero percent financing offers typically only available to borrowers who have excellent credit ratings usually referred to as a rating of 800 or over. You’ll want to before you begin looking for financing for your car. Each lender has its own definition of what constitutes excellent credit, and the requirements for qualifying could vary from vehicle to vehicle. Because zero APR qualifications differ so widely the best option is to contact the dealership ahead of time. Find out what requirements you have to fulfill to qualify for the interest-free financing you need for a particular car. In addition to your credit score and your income, an auto lender will consider other aspects when it reviews your application, such as: . Employment background. Income and address verification. Whatever the condition of your credit score -good, bad fair or excellent — it is important to seek approval to seek out financing from other sources as well. Preapproval will help you evaluate the options available and provide an alternate plan in the event that you don’t qualify for the automaker’s exclusive offer. Limits of interest-free financing could be a good deal for some people. Still, there are a couple of potential issues to look out for when considering this type of financing. The limited options for interest-free financing is available only for certain kinds of vehicles. First, the car you purchase will almost certainly need to be . Manufacturers of automobiles also make special financing deals available for vehicle models where there’s an excess of stock they need to move. Limited repayment options Based on the terms of the deal you’re offered, the repayment options you have with the 0% financing option may be more limited. In most cases you’ll have a shorter time to pay off the loan than you would have otherwise. There’s nothing wrong with repaying a loan quickly however, you must ensure that you can manage the greater monthly payments without straining your budget. A 0% loan is different from. bonus cash . Automakers prefer that you purchase your next vehicle from their brand and not from a competitor. This is one of the main reasons the 0% financing offer exists in the first place. To draw new customers, car manufacturers often provide buyers with. Unfortunately, an auto maker might not let you take advantage of both 0 percent financing and bonus cash. If you’re facing this issue, you’ll have choose which savings option is . Bankrate tip

The use of an app will allow you to compare zero percent financing with cash rewards. Sometimes, using the cash rebate offered by a dealer along with a higher loan APR can result in better overall savings. In other instances the financing with 0% interest rate could be the clear winner.

Do you want to take the cash and then refinance it later? You may have to agree to standard financing through Automaker’s own captive lender to qualify for certain cash incentives. In the exchange, there’s a possibility that you’ll receive a higher interest rate than get through your bank or external lender. In the case of your particular situation the new car loan in a few months might be an effective method. But there are some downsides to take into consideration first. For instance the fact that making two loans reverse-to-back — the original as well as the refinance with — can damage the credit score for quite a period of time. A combination of loans can result in at least two negative marks reports on your credit. The addition of two loans on your credit report even though one of them pays off the other, will reduce how old your accounts that appear on credit report. In terms of credit scoring the more advanced the average account is, the more favorable. The most important takeaway

Cash incentives may reduce the amount you have to borrow — but refinancing later to repay it may affect your credit score and cause it to take a temporary hit.

If an offer with 0% APR not worth it? It could be wise to forgo special manufacturer financing offers in the following circumstances. The repayment terms don’t fit your budget. Low-interest auto loans usually have shorter terms for financing. Depending on your income, a can make your monthly payments impossible to afford. For instance, if the 0 percent car loan runs 4 years while you typically finance for five years, the price difference can be meaningful. Average rates

0% APR

The amount to be financed

$25,000

$25,000

Loan term

5 years

4 years old

APR

4%

0%

Monthly payment

$460

$520

It is evident that on an automobile with a $25,000 loan from manufacturers for four years, the monthly installment will be around $520. A $25,000 car loan that is financed over five years with a rate of 4 percent interest rate requires the monthly payment to be $460. You can utilize the auto loan calculator to calculate the maths for your possible loan. Financial experts generally recommend that you limit your monthly car payment to 20 percent or less than your monthly take-home pay. And some experts suggest that you pay 10 percent of your total income. If you’re looking to buy more expensive vehicles. shouldn’t decide to raise your budget for autos just to be eligible for a special financing. If you’re looking to pay $10,000 cash for a , taking on an auto loan with a $30,000 cost just to avail of no-interest financing probably isn’t the best financial choice. Cash rebates can provide you with more savings Cash-back rebates often do not apply to customers who are using the manufacturer’s financing. If you look at the numbers and you find that cash rebates offer you a bigger chance to save money, a zero percent financing offer isn’t worth it. Imagine you can take advantage of a cash-back offer on a new vehicle purchase. If you buy a brand new car with an estimated price of $30,000 this incentive could bring the price of your purchase down to $25,250. If you were to finance $25,250 with a 4 percent interest rate in five-year terms, you’d be paying $2,651 in interest. In this scenario, your total cost would be $27,901 — as long as you didn’t add additional items such as extended warranties, or incur other financing fees. Or, you can pay the full $30,000 purchase price and then choose a zero percent APR. Assuming no add-on charges or products, you’ll have to pay an additional $2,099 in this case than what you’d take out a cash rebate. Do’s and don’ts for APR-free deals If you’re looking at the options available and determine a 0 percent APR auto loan is the best choice for you, these tips and don’ts could help you navigate the process. Do

Don’t

the purchase price prior to when you request the 0 percent APR offer.

You can take a short-term loan with a significant monthly payment amount you can’t manage to.

Be pre-approved to get an automobile loan prior to visiting the dealer.

Choose a long-term loan to lower your monthly payments if it will cost you more in the long run.

Confirm that you can pay for the monthly installment.

Select 0% financing over cash-back incentives without comparing the possible savings.

See if the manufacturer offers incentives for cash-back that you can mix with the special financing offer.

Skip the down payment If you are able to afford it.

The most important thing to determine if a 0 percent APR car loan is worth your time is to compare it against an automotive loan from an outside lender and figure out your real monthly costs. In the case of your particular situation, the deal may not actually save you money. There are some circumstances where special financing might not be quite as great as it appears, and qualifying often requires a high credit score. Be sure to check the current rates and ensure that interest-free won’t end up costing you more in total.

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Written by the contributing author Michelle Lambright Black is a credit expert with over 19 years’ experience. She is freelance writer, and certified expert witness on credit. Alongside writing for Bankrate Michelle’s writing is included in numerous publications such as FICO, Experian, Forbes, U.S. News & World Report and Reader’s Digest, among others. Editor: Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers to control their finances with concise, well-studied and well-researched content that breaks down otherwise complex topics into manageable bites.

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