0% auto financing means an auto dealership will give a car-buyer an auto loan without interest. While there is usually a down payment involved, the buyer will not have to pay interest on the amount borrowed. That’s right: 0% auto financing will provide a loan free of interest payments. This could seem like a great deal. But buyers need to know when zero percent financing works for their benefit and when it works against it.
Why zero percent auto financing is difficult to get: credit scores and loans.
Zero percent car financing is difficult to acquire because it’s usually offered to such a thin slice of qualified buyers. In order to qualify for any car loan, even one with zero percent, a borrower needs to have a good credit score. Only buyers with nearly spotless credit ratings can qualify. And even those buyers with some very slight tarnish on their credit scores could be refused.
Select vehicles and options often erase the 0% financing option.
Zero percent loans are only often offered as a financing option for the dealer’s choice of vehicle. Slower-moving vehicles are often tagged with the 0% financing incentive to move cars off the lot. This works fine for people looking for vehicles that aren’t selling well. But for buyers looking to buy a more popular vehicle, or for those searching for specific vehicle options, zero percent financing may not apply. While a dealer may be happy to provide someone looking for a car with, say, leather seats instead of cloth seats, the loan that previously didn’t have any interest may suddenly find itself coming with interest charges.
0% loans often discredits manufacturer’s rebates.
Auto dealers will often offer a 0% percent option to attract potential buyers to a dealership. When a buyer looks to capitalize on a manufacturer’s rebate as well as the 0% financing, the dealer tells her it’s one or the other. But this can sometimes work to the benefit of some borrowers. If your credit score doesn’t qualify you for the 0% auto financing, you can search out the manufacturer’s rebate and still save yourself money.
Zero percent auto financing can sometimes be more expensive than interest-charging loans.
Depending on the interest rate and a borrower’s qualifications, an interest-bearing loan can sometimes be more affordable on a month to month basis than options offering zero percent financing. Often, a dealership will offer a zero percent auto loan for a much shorter term than a typical, interest bearing loan. This quickened repayment schedule will cost the borrower more each month than a traditional, longer interest bearing loan. Let’s use an example. Say the loan amount for a new car is $20,000. Through a typical interest bearing account, and ignoring any down payment, a buyer would stand to pay off the loan in about 72 months. At 6.75% on the loan, the buyer would pay about $296.53 each month. With a zero percent auto financing option, that same buyer would need to make her payments in a far shorter period of time. Let’s say bout 36 months, which is typical for zero percent auto financing. Those $20,000 would cost our zero percent buyer $555.56 each and every month.