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0% APR car deals: Are they worth it? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by offering financial calculators and interactive tools that provide objective and original content. This allows you to conduct research and compare information for free – so that you can make financial decisions with confidence. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The offers that appear on this site are from companies who pay us. This compensation could affect how and when products are featured on this website, for example, for example, the order in which they may be listed within the categories of listing in the event that they are not permitted by law. This applies to our mortgage or home equity products, as well as other home lending products. This compensation, however, does affect the information we provide, or the reviews you read on this site. We do not include the vast array of companies or financial offerings that could be accessible to you. @VeraNovember/Twenty20

6 minutes read. The publication was published on March 02, 2023.

Written by Michelle Black Written by Contributing writer Michelle Lambright Black is a credit expert with more than 19 years’ experience. She’s an author on a freelance basis and an accredited credit expert witness. Alongside writing for Bankrate Michelle’s writing is featured with numerous publications including FICO, Experian, Forbes, U.S. News & World Report and Reader’s Digest, among others. Written by Rhys Subitch Edited by Auto loans Editor Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to manage their finances with concise, well-researched and accurate information that breaks down complex topics into manageable bites. The Bankrate promise

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They’re worth it if you lower your monthly payments. But you need an excellent credit score to qualify. Keep both its cost-effectiveness and the eligibility of your car while driving around for a test.

What is 0% APR? A zero percent APR essentially means you borrow money for no cost. Your monthly payments reimburse you the lender for the money it paid to the dealer, however no additional cash you have in your pocket will go into the lender’s bank account. This differs from the typical way of doing business, where the lender will charge you in exchange for financing. Interest and fees in the end, are the principal ways lenders earn money. Here’s an illustration of the difference in monthly cost a 0 percent APR might bring in compared to the more common APR. Average rate

0 percent APR

Amount financed

$27,564

$27,564

Loan term

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? A car loan that is interest-free seems too appealing to be real. However, these financing deals are a tool that manufacturers of automobiles can utilize to increase sales of their vehicles. Loan providers that offer zero percent financing are called captive finance companies and are connected to . Examples of lenders that are captive include Ford Motor Credit, GM Financial, Nissan Finance, Toyota Financial Services and more. So, if Ford plans to sell more F-150s due to concerns about overstock, it may offer zero APR loans to a select group of borrowers via its own financing division. No-interest financing seems more reasonable on the surface however, this isn’t always the case. If car manufacturers offer 0 per cent financing, they may try to make up for “lost” income in other ways. For instance, a dealer may try to get you , like or , using your car. Also, you may have to forfeit benefits such as rebates which would normally lower the purchase cost. How to qualify for an 0% APR vehicle deal? Zero percent financing deals are generally reserved for borrowers with good credit scores — typically classified as a credit score of 800 or over. It is important to check this before you make any purchases for financing for your car. Each lender also has its own definition of what constitutes excellent credit, and qualification requirements could vary from vehicle to vehicle. Because the zero APR qualifications differ in a wide range, your best bet is to call the auto dealership ahead of time. Ask what criteria you need to meet to qualify for an interest-free loan on a particular car. In addition to your credit score, an auto lender might consider other factors in evaluating your application, such as: . Employment history. Income and address verification. Whatever the condition of your credit score — good, bad, fair or excellent , it is important to seek approval to from outside financing sources too. Preapproval will help you evaluate the options available and provide an alternative plan in case you’re not eligible for the exclusive offer offered by the automaker. Limits on interest-free financing might be a great deal for some people. However, there are a couple of potential issues to be aware of when looking into this kind of finance. Limited selection: Interest-free financing is available only for certain kinds of vehicles. First, the vehicle you purchase will almost certainly have to be . Auto manufacturers also tend to make special financing deals available for models of vehicles when there’s surplus stock that must be moved. Repayment options are limited Based on the deal the repayment options for the 0% financing option may be limited. Most of the time you’ll be given less time to pay off the loan than you might have otherwise. Of course, there’s nothing wrong with paying back a loan fast but you need to be sure that you can afford the higher monthly payment without putting your budget in jeopardy. Zero percent financing vs. bonuses Cash offers from automakers prefer that you purchase your next car from their company and not from a competitor. This is the primary reason the 0% financing offer exists at all. To attract new customers, auto manufacturers often provide buyers with. Unfortunately, an auto maker may not allow you to take advantage of both zero percent financing as well as bonus cash. If you’re in this situation, you’ll need choose which savings option is . Tips from Bankrate

The use of an app is a way to evaluate the 0 percent loan rate versus cash rewards. Sometimes, taking cash rebates an auto dealer offers along with a higher loan APR can result in better overall savings. In other instances financing at 0 percent could be the clear winner.

Should you take the cash and then refinance it later? It could be necessary to take standard financing through the automaker’s captive lender to be eligible for certain types of cash incentives. In the event of a loan, it’s possible that you’ll be offered a greater interest rate than you might get through your bank or external lender. In the case of your particular situation, your new auto loan in a few months may be an effective approach. But there are some downsides to take into consideration first. Namely the fact that having two loans back-to-back — the original loan and one that you refinance with — can damage your credit for a time. Multiple loans will cause at minimum two hard on your credit reports. In addition, adding 2 loans to your credit report even though one of them pays off the other, will reduce how old your your accounts in your credit records. When it comes to credit score the more advanced the average age of your accounts the better. The most important message

Cash incentives can reduce the amount you need to take out a loan, but refinancing later to repay it can affect your credit score and cause it to suffer a temporary drop.

If an offer with 0% APR not worth it? It might make sense to avoid special manufacturer financing offers in the following situations. The repayment terms don’t fit your budget. Low-interest auto loans usually offer shorter financing terms. In the case of your income, it might make your monthly installment impossible to afford. For instance, if a 0 percent car loan runs for four years, but you typically finance for five years, the price could be significant. The average rate

0% APR

Amount financed

$25,000

$25,000

The term “loan”

5 years

4 years old

APR

4%

0%

Monthly payment

$460

$520

As you can see, on a $25,000 car loan from an automaker for four years your monthly installment will be around $520. A $25k car loan that is financed over five years with a rate of 4 percent interest rate would require the monthly payment to be $460. You can use an online auto loan calculator to do the maths for your possible loan. Experts in finance often suggest the vehicle’s monthly payments to 20 percent or less of your take-home income per month. Experts suggest you should be paying 10 percent of your gross income. It’s tempting to buy an expensive car. You should not increase your car budget in order to get a loan. If you’re looking to buy a car for $10,000 in cash a , taking on an auto loan with a $30,000 price cost just to avail of financing with no interest is probably not a wise financial move. Cash rebates provide greater savings. Cash-back rebates typically don’t apply to buyers who are using the manufacturer’s financing. If you look at the numbers and you find that cash rebates offer you a bigger savings , then a 0 percent financing offer isn’t worthwhile. Imagine you can take advantage of a $4,750 cash back offer on a brand new car purchase. For a new car that has a $30,000 price tag this incentive could bring your purchase price down to $25,250. If you financed $25,250 at an interest rate of 4 percent over five years, then you’d pay the interest of $2,651. In this case your total expense would be $27,901 as long as you didn’t include additional products such as extended warranties or incur any other financing fees. Alternatively, you could pay the full $30,000 purchase price and then choose a zero percent APR. Assuming no add-on products or fees, you’d be paying $2,099 more in this case than what you’d take out a cash rebate. Do’s and don’ts of APR-free loans If you’re looking at your options and decide an auto loan is the best option to make, the following tips and don’ts may help you navigate the process. Do

Don’t

the purchase price before you ask for the purchase price before you ask for the APR the purchase price before you ask for the 0 percent APR.

Accept an unrestricted loan with a high monthly payment that you cannot pay for.

Make sure you are pre-approved on an auto loan before you visit the dealer.

Choose a long-term loan to lower your monthly payment even if it costs you more in total.

Verify that you can pay for the monthly installment.

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

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

Skip the down payment when you have the money to make one.

The most important thing to deciding if a 0 percent APR car deal is worth it for you is to assess it to the cost of an automobile loan from an external lender and determine your actual monthly costs. Based on the circumstances the deal might not be a good deal for you. There are also a few instances where special financing may not be as effective as it appears and getting it requires excellent credit. Be sure to check the current rates and ensure that the interest-free loan won’t cost you more overall.

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Written by a contributing Writer Michelle Lambright Black is a credit expert with more than 19 years experience. She is an independent writer, and a certified credit expert witness. In addition to 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 committed to helping readers gain the confidence to control their finances through providing concise, well-studied and well-researched content that breaks down complicated topics into digestible chunks.

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