0% APR Car Deals: Are They Worth It? (2024)

A car loan with a 0% annual percentage rate (APR) can seem like the perfect deal to get the car you want. With no interest or fees, it can feel less like taking out a loan and more like borrowing money from a friend.

But like anything that sounds too good to be true, these offers almost always come with strings attached. We’ll explain the potential drawbacks to a 0% APR car loan, and how to decide whether it’s a deal worth taking.

What Is a 0% APR Car Loan?

When you take out a car loan, the lender will usually charge you interest in exchange for financing the purchase. The interest rate will vary depending on the term, type of car, loan amount and your credit score. Most lenders also charge fees on top of interest. The APR reflects both the fees and interest assessed on the loan.

A 0% APR deal typically means the lender is not charging interest or fees on the loan.That means all your monthly payments will go toward the loan principal.

The 0% APR loan deals are mostly available for new cars or in rare cases, certified pre-owned cars.

Unfortunately, most lenders do not offer 0% APR. In fact, these discounts are usually found through a car manufacturer, and will be limited to select vehicles.

Dealerships offer 0% APR because they’re making more money off the car purchase. And borrowers may be willing to buy a more expensive vehicle if they can get 0% APR financing.

How Do I Qualify For a 0% APR?

Borrowers need an excellent credit score to qualify for a 0% APR deal, usually 740 or higher. You can check your credit score for free by visiting the sites of the three major credit bureaus or through your bank or credit card provider. If your score is below 700, you may find it difficult to be approved for a 0% deal.

Dealers also often require a down payment for a 0% APR loan, which can be several thousand dollars or more. If you don’t have the down payment in cash, you won’t be approved for the loan.

In rare cases, you may be able to find a 0% APR deal with no down payment required. Again, these deals will likely require an excellent credit score and stable income.

Pros of a 0% APR Car Loan

If you’re already in the market for a new car, the main pro to getting a 0% APR deal is that it could save you hundreds on interest in the long run. For example, let’s say you want to buy a 2021 Honda HR-V with a retail price of $21,220. If you get a 0% APR loan for 48 months, your monthly payment would be $442.

If you got a loan with 2% interest for 48 months, you would pay $460 a month and $878 in total interest over the life of the loan.

Cons of a 0% APR Car Loan

Even though paying no interest sounds like a can’t-miss opportunity, there are some downsides:

Only Available for New or Slightly Used Cars

Because 0% APR deals are only available on new or gently used cars, the purchase price is higher than it is for used cars. You may wind up paying more on a monthly basis than you anticipated, which could affect your ability to reach other financial goals.

The car selection also tends to be limited. Even if a dealership is advertising 0% APR on one type of model, they may not offer the same special for other models. For example, they may offer 0% APR on a hybrid version of the model, but not on the regular version.

Only Offered for Shorter Loan Terms

A 0% APR deal is often only available for specific loan terms, usually 48 months or less. Car loan terms range from 24 to 84 months, but 0% APR deals typically have shorter terms.

Since the most popular loan term is currently 72 months, the monthly payment for a 0% APR deal may still be unaffordable for many borrowers.

For example, let’s say you’re buying a $25,000 car with 0% APR for 48 months. Your monthly payment is $521. If you choose a 60-month term with 3% interest, your payment would drop to $449.

You Still Need a Down Payment

Even though a dealer may waive interest fees, they might require a down payment to secure the special rate. The down payment requirement for a 0% APR car loan is usually between 10% and 15%. For example, a $25,000 car would have a minimum down payment between $2,500 and $3,750.

You’d Give Up Other Rebates

Many dealers offer rebates to borrowers, which are like a credit you receive once the deal is finalized. Depending on the car and manufacturer, you can find a rebate worth several thousand dollars—but these rebates usually aren’t available if you get a 0% APR loan.

In some cases, you’re better off paying interest if you can get a rebate, if that rebate equates to a better deal. Also, if you choose the rebate, you can look for a lender outside of the dealership. This means you can shop around with multiple lenders to find the best rate, while still taking advantage of the rebate.

Where Can I Find a 0% APR Car Deal?

Every manufacturer determines their own sales and discounts. The best way to find a 0% APR car loan is to search around your local dealerships regularly, and online. Sign up for emails to be notified when an offer comes through. You can ask the salesperson to call you when 0% offers are available.