Are no-interest car loans legit? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial decisions by offering interactive tools and financial calculators as well as publishing objective and original content. This allows you to conduct your own research and compare information for free – so that you can make sound financial decisions. Bankrate has partnerships with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that are advertised on this site are from companies that compensate us. This compensation can affect the way and where products appear on this website, for example such things as the order in which they may appear within the listing categories and other categories, unless prohibited by law. This applies to our mortgage, home equity and other products for home loans. This compensation, however, does affect the content we publish or the reviews appear on this website. We do not cover the entire universe of businesses or financial offers that may be accessible to you. SHARE Adam Gault/Getty images
3 minutes read. Published September 27, 2022
Kellye Guinan Kellye Guinan. Written personal and Business Finance Contributor Kellye Guinan is a freelance editor and writer with more than five years’ experience in personal financial planning. She also is employed full-time at the local library, helping people in her community gain access to information on financial literacy, among other topics. Written by 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 manage their finances by providing concise, well-studied information that breaks down otherwise complex subjects into digestible pieces. The Bankrate promise
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We are compensated in exchange for placement of sponsored products and services or by you clicking on specific links on our website. Therefore, this compensation may impact how, where and in what order items are displayed within the categories of listing in the event that they are not permitted by law for our mortgage, home equity and other home lending products. Other elements, such as our own proprietary website rules and whether or not a product is available within your region or within your self-selected credit score range may also influence the manner in which products are featured on this site. While we strive to provide the most diverse selection of products, Bankrate does not include details about every financial or credit products or services. Plenty of manufacturers and dealerships offer zero-interest car loans — so yes they’re real. However, it’s difficult to get a zero per cent annual percentage rate (APR). You’ll need a good credit score. Also, you’ll need to pay other fees therefore don’t think that the financing with no interest to be free of costs. How 0% financing works and why it’s a good idea If you take out an auto loan with an APR of 0 percent, you will not be charged interest for the duration of the loan duration. It may sound like a good deal to be true, but 0 percent financing isn’t uncommon. It’s provided by captive finance companies that the manufacturer owns. The manufacturer makes use of these companies to attract customers however, only a small number of customers are eligible. In order to make up for money lost on interest, this type of financing is only available to new models. Buyers still have to be responsible for the costs, including documentation, title and licensing fees. Dealerships may also press you to , or an . These aren’t mandatory, so be firm in your decision if you do not want them. And don’t be afraid to discuss the total price. Zero percent financing is only a small portion of the buying process. How do you qualify for financing at 0%? Each lender has its own eligibility requirements. However, meeting these guidelines could increase your odds of approval which is the main requirement. They want to know they have near-perfect history of making payments and managing your debt before they offer you zero-interest financing. A credit score of 781 or more is the best deal on financing, but you may still be eligible for financing if your credit score falls between 661 and 780. A steady source of income is essential. Because your loan period could be only 48 months — resulting in high monthly payments, a lender will need to be sure you can afford your car payment. You might require a higher down payment. Even if there isn’t a requirement to pay a deposit to be eligible for loans, many lenders require a hefty down payment to qualify for a zero percent interest auto loan. The lenders also require the lowest DTI . A low DTI confirms your income is sufficient to cover this new debt in addition to other obligations that you could be making. If you are eligible for 0% financing No-interest financing is an excellent option if you already plan to buy a either a new or (CPO) vehicle. Manufacturers typically don’t offer it on the base models, so you’ll be paying for extra options. If you’re eligible then you’ll have to choose to separate from the financing — and visit the dealer with a financing lender. This way you’ll be in a position to estimate exactly how much the interest you’ll pay with 0 percent financing. If you can afford the monthly cost and you know you’ll get a couple of thousand dollars on the car you’d like to buy, is the option for you. If not, think about it along with other financing options. The negatives of a no-interest car loan A no-interest auto loan isn’t always the most efficient method to save. Manufacturers and dealerships want to make up for the money they’re losing. The financing will only be available on select models that have added featuresand with shorter loan terms. Manufacturers can offer only limited loan terms with no-interest car loans. The usual period is between 24 and 48 months. Loans of 60 or 72 months are uncommon. Because your loan period is shorter, your monthly car payment will be more expensive . Ensure that you can manage the monthly payments. Rebates or bonus cash are not always accessible. Although you’ll not pay in interest, you’ll likely not be able to get a . If your total interest is lower than the rebate or bonus cash, a no-interest loan will not save you cash. The majority of no-interest financing is for new vehicles that go beyond the basic model . Some companies may also provide it for . The bottom line No-interest financing is an effective method to save on a new vehicle. If you’re already planning to purchase a more expensive model, you can avoid paying a few thousand in interest. If you’re willing to accept a higher monthly payment on the shorter loan duration, you’ll be able to pay less for your car than it is worth. But, only a handful of people can qualify for a car loan with no interest. Even if you qualify however, you may not save as much as you would get through bonus cash or a brand new car rebate. It’s a good idea to secure financing prior to shopping and between what you’ll pay for interest and the amount you’ll save by using other alternatives. Related Articles: SHARE
Written by personal and business finance writer Kellye Guinan is a freelance editor and writer with more than five years of experience in personal finance. She is also a full-time worker at her local library, helping the community gain access to information on financial literacy, as well as other subjects. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping their readers feel confident to control their finances through providing concise, well-researched, and well-researched content that breaks down otherwise complex topics into manageable bites.
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