What Car Dealers Offer 0 Financing - Written by Michelle Black Written by Michelle BlackArrow Right Contributing Author Michelle Lambright Black is a credit expert with over 19 years of experience, freelance writer, and certified credit expert. In addition to writing for , Michelle's work has been featured in many publications, including FICO, Experian, Forbes, U.S. News & World Report and Reader's Digest. Connect with Michelle Black on Twitter Twitter Connect with Michelle Black on LinkedIn LinkedIn Michelle Black
Edited by Rhys Subitch Edited by Rhys Subitch Right arrow Rhys auto loan editors have been editing and writing since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that cuts otherwise complicated topics into bites that can be managed. Connect with Rhys Subitch on LinkedIn Linkedin Rhys Subitch
What Car Dealers Offer 0 Financing
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With the average monthly payment for a new car approaching $710 and about $530 used, according to Experian data from the third quarter of 2022, finding deals is a top priority. And signing a 0 percent APR car deal is one way to save money on your next car purchase.
Many car manufacturers offer interest-free car loans to attract new, qualified customers and sell more vehicles. However, when shopping for a new vehicle, you should always exercise caution, even if there is a zero APR offer on the table. In some cases, it may work better in the long run to get a car loan from an outside lender.
They are worth it if you save money on your monthly payments. But you need very good credit to qualify. When taking a test drive, consider your cost-effectiveness and feasibility.
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A 0 percent APR or interest-free car deal basically means you're borrowing money for free. Your monthly payment reimburses the lender for the money it pays the car dealer, but no extra money goes out of your pocket into the lender's bank account.
This is different from the usual approach when taking out a car loan where the lender charges you interest in exchange for financing. However, interest and fees are the main way lenders make money. When you pay off a loan, you pay the lender back the money it pays to the car dealer on your behalf. The interest you pay helps the lender make a profit.
Financing an interest-free car sounds almost too good to be true. But these financing deals are tools automakers can use to sell more vehicles.
Lenders that offer 0 percent financing are known as captive finance companies and are linked to the car manufacturers themselves. Some examples of captive lenders include Ford Motor Credit, GM Financial, Nissan Finance, Toyota Financial Services, and many more. So if Ford wanted to sell more F-150s because of overstock issues, Ford could offer a zero APR loan through its own financing unit to select borrowers.
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Interest-free financing may seem more affordable at first glance, but that is not always the case. When automakers offer 0 percent financing, they can try to make up for "lost" revenue in other ways. For example, dealers will go to great lengths to sell you add-ons, such as extended warranties or gap insurance, to your vehicle. You may also have to forego perks like discounts that usually lower your purchase price.
Zero percent financing agreements are generally reserved for borrowers with very good credit -- usually classified as having a credit score of 800 and above. You'll want to check out your credit report for yourself before shopping for car finance. Each lender also has excellent credit definition and qualification requirements can vary from vehicle to vehicle.
Since the qualification standards for APR zero vary widely, it is best to check with the car dealer first. Ask which criteria you must meet in order to qualify for interest-free financing of a particular vehicle. In addition to your credit score, car borrowers may consider additional factors when reviewing your application, such as:
Regardless of your credit rating - good, bad, fair or excellent - you should also take the time to seek pre-approval from outside sources of financing. Pre-approval can help you compare your options and give you a backup plan if you don't qualify for the automaker's exclusive offers.
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Interest-free financing can be a good thing for some borrowers. However, there are some potential pitfalls to be aware of when considering this type of financing.
Automakers want you to buy their next vehicle from their company, not a competitor. This is the main reason why 0 percent financing offers exist in the first place. In an effort to attract new customers, automakers often offer buyers cash rebate bonuses.
Unfortunately, car manufacturers are not allowed to let you take advantage of 0 percent financing and bonus money. If you are faced with this dilemma, you need to decide which saving option is better.
Tip: Using an automated finance calculator can help you compare apples to oranges when it comes to 0 percent financing versus bonus money incentives. Sometimes taking a cash discount the car dealer is offering along with a higher loan APR makes the most sense in terms of overall savings. In other cases, 0 percent financing may be the clear winner.
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You may need to receive standard financing through an automaker lender to qualify for certain types of cash incentives. Instead, you may receive a higher interest rate than you could receive through an outside bank or lender.
Depending on your situation, refinancing your new car loan within a few months can be an effective strategy. But there are some drawbacks that you should consider first. Namely, taking out two car loans in quick succession — the original and the one you refinanced with — can temporarily damage your credit.
Some loans generate at least two hard credit questions on your credit report. Adding two loans to your credit report, even if one pays off the other, can lower the average age
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