Zero (0%) financing deals are available for many new cars and a few selected old cars. You can find these deals from almost all leading car brands.
Let us discuss what is zero (0%) financing and how you can get the deal.
What is Zero (0%) Financing for Auto loans?
True to the name, zero financing means zero interest on your car loan. It means you only pay the full price of your purchased car without paying interest on it.
A zero (0%) financing deal sounds too good to be true but many automobile companies and dealers come up with this offer time and again.
Most renowned automobile companies like Ford, GM, Volkswagens, and Toyota offer zero (0%) financing on their selective car models.
Getting approved for a 0% APR car loan might be difficult as compared to other deals. You should expect stricter approval criteria including a high credit score demand from many car dealers.
Once approved, you’ll pay monthly installments over the credit term. 0% APR car deals often come with a long credit term. However, your 100% contribution goes towards your loan principal as there is no interest cost.
Can You Get Zero (0%) Financing on New and Used Cars?
Many automobile companies offer car financing through their specialized subsidiaries. For instance, General Motors (GM) offers its financing through its subsidiary GM Financials.
You can find the best and latest 0% APR deals directly through automobile lending partners. However, you can also search for deals and incentives offered by different car dealers as there will be special deals in different locations.
Zero (0%) Financing for New Cars
Most automobile companies offer zero (0%) financing on new cars. You can find these offers on selected car models for almost all top car brands.
For instance, Chevrolet offers a 0% APR car financing for its 2021 CHEVROLET Equinox for a 48-month credit term.
Finding a 0% APR deal for a new car is relatively easier. Most famous car brands offer such discounts and low-interest rates to attract new buyers.
A drawback of 0% APR offers is the extended credit period. Borrowers may make monthly payments in a 0% APR deal for a longer period than other auto loan programs.
Zero (0%) Financing for Used Cars
Finding a zero (0%) financing deal for used cars is tricky. It is because car dealers and automobile companies want to sell new cars to new buyers.
Zero (0%) financing deals on used cars can be found as seasonal promotions and special incentives in some locations. For instance, Volkswagen offered 0% APR on a few selected car models in the recent past.
A 0% APR is more common for a car lease rather than a purchase loan. Also, 0% APR offers are for longer credit terms.
It means you’ll continue paying for a long time than a higher-interest rate car loan. You can expect a 72- or 84-months credit term on a used car if it offers a 0% APR.
How to Qualify for Zero (0%) Financing?
Qualifying for a zero (0%) financing is difficult as compared to other auto loan programs. Lenders take higher risks with a 0% APR program as they do not receive any interest earnings.
Usually, you can expect approval for a 0% APR if you hold a tier 1 credit score that is 720+. Also, your credit history should be clean of any bankruptcy or default cases.
Apart from documentation requirements, your income source is also important. Lenders will also take a look at your income-to-debt ratio.
Your initial application approval can be instant. Once you fulfill the necessary information on an online form, your credit application will be processed for further approval.
In most cases, creditors will look at your credit score. Be mindful that it will be a hard inquiry on your credit history in most cases. Therefore, you should ask for the credit score requirement from the dealer presentative directly before applying.
Why Do Dealers Offer Zero (0%) Financing?
There are several reasons why dealers offer zero (0%) financing when they can earn significant interest on the same car loans.
For a lease program to offer 0% APR makes sense as the borrower is not purchasing the vehicle. You only make lease payments not loan installments. Lease contributions are often higher than loan installments.
Automobile companies and their authorized car dealers offer 0% APR on new cars in most cases. They offer this incentive on selective car models to increase sales.
Then, there are special 0% APR deals in selected locations where sales of certain cars may be lower. The incentive would attract new buyers.
There are a few exceptional cases where car dealers offer 0% APR on used cars as well. Again, the incentive is to sell cars that would otherwise tie up capital for the dealers.
Also, dealers would cover their interest costs from the automobile company. It means the car manufacturer rather than customers would cover the interest costs.
In many cases, car dealers would offer a higher car price when offering a 0% APR deal. So, be mindful of the total cost you pay when applying for a 0% APR deal.
Pros and Cons of Zero (0%) Financing
Zero (0%) financing offers several advantages and disadvantages to the borrowers.
You pay no interest on your car loan. You can also combine this 0% APR deal with cash rebates and other incentives.
This offer makes purchasing your favorite car feasible. If you can afford to make monthly installments throughout the credit term, it is your best option to save interest costs.
0% APR does not come free. There are a few caveats for you with this option.
0% APR is mostly offered on new cars. You would hardly find this deal with a used car. However, finding 0% APR on used cars is not entirely impossible.
Car manufacturers and dealers may not offer 0% on your favorite car until it becomes out of fashion.
Then, the car price may be higher than the normal price of the same model with a 0% deal.
Alternatives to Zero (0%) Financing
Qualifying for a 0% APR deal is difficult. Not all borrowers would pass the strict qualification criteria.
Your first alternative option is to look for third-party car dealers and online lending platforms. You can find the same or a similar low-interest deal on your favorite through online car financing.
The credit score requirement for a 0% APR is strict. However, you can consider an alternative to look for a low-interest deal. For instance, you may qualify for a 1.5% APR deal but fail 0% APR loan criteria with your credit score.
Similarly, applying for a car deal through a commercial bank or using a guarantor such as your employer may increase your qualification chances.
You can also apply for a personal loan and use it to purchase your favorite car.
Even if you do not qualify for a 0% APR car deal, you can get compensation for it. For instance, you can look for cash incentives and discounts that would be equal to interest savings.