0% APR Car Deals: What’s the Catch?

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. This can save car buyers thousands of dollars in interest and fees throughout the loan term.

But a 0% car loan is not always the best deal. You may be able to save more 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 don’t pay any interest or fees.

In the table below, you can see the difference in the monthly payment and the total amount of interest paid. That’s thousands of dollars that stays in your pocket instead of going to the lender. Essentially, you pay less to buy a car compared to one that carries an APR on the loan.

Loan amount is based on the average price paid for new cars as of December 2023, according to Kelley Blue Book. The average APR applies to new vehicles purchased in January 2024, according to Edmunds.

Where to find car deals with 0% APR

Car manufacturers’ captive financing arms — think Ford Motor Credit, Toyota Financial Services, and Nissan Finance — may offer 0% APR financing 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.

While 0% APR financing offers can happen anytime throughout the year depending on the manufacturer, these promotional deals only last a short time. You can often 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.

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.

Drawbacks of car deals with 0% APR

While it may sound attractive, 0% APR deals on cars may not be the best fit for you. Consider these downsides before agreeing to a loan:

• Limited car selection: With a 0% APR deal, you’ll likely be limited to specific vehicles, not the manufacturer’s entire lineup. These vehicles may not have the features and options you want, and 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. 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.

In some cases, a rebate may offer greater savings than a 0% APR car deal, although monthly payments may be higher. 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. 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.

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 may cost more than you can afford. Generally speaking, a used car will cost 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 on top of a competitive interest rate from the manufacturer. This could result in a lower monthly payment and overall cost of ownership.