You see the advertisements on television and hear them on the radio promoting the financing deal of a lifetime on a new car. While zero-percent interest on a car loan may sound appealing, it’s important to understand how these deals work, qualification criteria, and where to find them.

woman financing a car

Keep reading to learn more:

How 0% Auto Loan Financing Works

Zero-interest auto loans are offered by auto manufacturers to entice customers to buy a particular vehicle. These deals are designed to sell high volumes of select makes and models. But it’s highly probable that you’ll have to finance the vehicle in-house to snag the deal.

The primary benefit of 0% auto loan financing lies in the opportunity to save a bundle on what would’ve otherwise been spent on interest.

You also get the luxury of making payments over time, which allows you to maintain a healthy cushion or even invest the money so compounding interest can work in your favor.

Dealer-Only 0% Interest Deals

Some dealerships occasionally offer their own version of zero-percent financing. In this case, interest will still be applied to the loan, but the dealership will cover the associated costs.

How to Qualify for 0% Interest on an Auto Loan

Unfortunately, advertisements can be misleading as most 0% interest deals are reserved for individuals with excellent credit, usually around 680 or higher.

In fact, 0% interest auto loans only account for 9 percent of in-house financing transactions, notes Edmunds.

But keep in mind that the minimum credit score varies by auto manufacturer, which means you may qualify for a zero-interest auto loan with one manufacturer and not the other.

So, it’s best to inquire with the financing department at a dealer near you to learn more. They should be able to provide more information about qualification criteria without running your credit.

How to Find 0% Interest Auto Loan Deals

Oftentimes, there are several 0% interest deals going on at once, but you may have to do a bit of digging to find them. Not seeing or hearing an ad doesn’t mean that a deal isn’t available.

A quick online search on the auto manufacturer’s website on the page where promotions are listed may be the easiest way to spot offers.

But don’t stop there. Also, explore special financing promotions offered through local dealerships as they may be running their own zero-percent interest deal with less stringent qualification criteria.

You can also view a comprehensive listing of current 0% interest promotions on Edmunds, US News and World Report, and CarsDirect.

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How to Apply for a 0% Interest Auto Loan

Applying for a no-interest auto loan is the same as applying for any other auto loan. You’ll need to complete an in-house financing application, either online or on-site, that includes information about your income, and consent to a credit check.

But before applying for a loan, you should:

Retrieve a copy of your credit report and score.

Doing so will give you an idea of where you stand so you won’t be caught off guard when applying for loans. Keep in mind that the score lenders see may be different. Also, if your score is on the lower end of the spectrum, it may be worthwhile to work on improving your score before applying.

This guide shows you how to get a copy of your credit report free of charge. And if you don’t know how to find your score, this guide provides additional guidance.

Shop around for additional financing offers.

Why so? Well, it gives you other low-interest financing options in case you are a few points shy of the minimum credit score for zero-percent financing. You’ll also have bargaining power as the dealer will try to undercut other offers on the table to get you the best deal and earn your business.

And don’t worry about your credit score taking a hit from multiple applications. According to myFICO, auto loan applications made within a 30-day window only count as a single inquiry if you find a loan that suits you within this period.

Run the numbers if there are other incentives are on the table.

If there’s bonus cash back or a rebate, you may get more from those deals than zero-percent financing. And also consider the cost-savings that could be incurred from refinancing the loan.

To illustrate, assume you’re purchasing a vehicle for $20,000, but will only borrow $15,000 (this amount includes taxes and registration fees) due to $5,000 down payment.

Because of your strong credit history, the dealer has given you the option to pay no interest over the life of the loan. You can also forgo this opportunity to receive $1,800 in bonus cash, but you’ll have to pay interest of 2.99% over the 4-year loan term.

Here’s how the numbers play out:

 
Monthly Payment
Interest Paid Over the Life of the Loan
Total Amount Paid for the Vehicle

Option 1: 0% Interest

$313

$0

$15,000

Option 2: 2.99% Interest with $1,800 in bonus cash from the dealer

$332

$934

$15,934

In this case, option two would be the best choice. Despite paying $934 in interest over the life of the loan, you’ll still walk away with $866 because of the bonus cash ($1,800-934).

Some Important Considerations

It’s not uncommon for the salesman to focus on the monthly payment amount and not the total amount the car will cost you, to convince you that you’re getting the best deal. This is another area where the dealer will try to boost their profit margins.

So, it’s pertinent that you pay close attention to what you’ll pay over the life of the loan for both principal and interest. This means you should talk numbers before you disclose how you’ll be paying for the vehicle.

You should also make a down payment if possible, even if the lender isn’t requiring you to do so. This minimizes the chances of losing money due to depreciation should you decide to sell the vehicle at a later date.

The same concept applies to loan terms; the shorter the better as an extended period means you’ll pay more in interest and could possibly lose on the sale due to depreciation.

Finally, avoid unnecessary add-ons as they may be cheaper to purchase elsewhere. They may not seem like such a big deal, expense wise, but dealers often try to pad the purchase price on 0% interest offers by convincing you to buy bells, whistles, and extended warranties.

What If You Don’t Qualify for 0% Financing?

If you don’t qualify for 0% financing and need a new car right away, return to the drawing board to view other options that may be available to you. Use prequalification tools from online lenders to determine what you may qualify for with no impact to your credit score.

Still no luck? Credit unions and community banks may be able to assist as they have competitive auto loan products for those without perfect credit. Also, consider buying an older car and paying cash to avoid interest altogether.

Bottom Line

It may be easier than you think to finance a car at 0% interest. And if you do the legwork and find a deal that best suits your needs, you’ll be driving off the lot in your dream car in no time.