If you have ever seen car commercials promising 0% APR auto loans, then you might be wondering if that is too good to be true. How is it possible that dealerships lend money without collecting interest? Even though a 0% APR loan sounds almost too good to be true, the truth of the matter is that it does not always constitute the best financial decision for all buyers.
In this guide, we’ll uncover the real truth about 0% APR auto loans, their benefits, hidden drawbacks, and whether they’re truly the best option for your next vehicle purchase.
What Is a 0% APR Auto Loan?
An auto loan where you pay absolutely no interest charge on the total amount borrowed from you for 36 to 72 months period is called the 0% APR auto financing. This facility is different in that it differs from the others where you also have to give interest for its use.
How Do Dealers Offer 0% APR for Cars?
This strategy of 0% financing has been used by automakers as a marketing strategy to attract more buyers and, consequently, boost car sales. Rather than reaping the profit from interest, manufacturers collaborate with financial institutions to offer these loans in exchange for selling more cars. However, these loans are offered with certain conditions that might not favor all buyers.
Advantages of 0% APR Auto Loans
For those who qualify, 0% APR loans can have many advantages, including:
- No Interest Charges
Since you are not paying any interest, you save thousands of dollars over the loan term in comparison with traditional financing. For example, on a $30,000 loan at 6% APR for 5 years, you’d pay about $4,800 in interest—which you completely avoid with a 0% APR loan. - Lower Monthly Payments
You will be able to pay lesser on your monthly payments because you would not incur interest costs, thus you will be in a better position to manage your finances. - Faster Loan Payoff
You can repay your car fast because 100% of your payments can go towards the principal, losing no money on interest. - Better Budgeting and Savings
Without interest, you have more room to commit to other financial goals, such as savings, investment, or reducing debt.
The less-apparent Drawbacks of 0% APR Auto Loans
A 0% interest loan sounds appealing, but there are some less-obvious downsides to consider before signing the contract:
- Credit score requirements
Not everyone qualifies for 0% APR. These loans are usually reserved for buyers with excellent credit scores (typically 720+). If your credit score is lower, you may not qualify or may be offered a higher interest rate instead. - Shorter Loan Terms
Many 0% APR loans have shorter repayment terms (36-48 months instead of 60-72 months). This means your monthly payments will be higher than if you financed with a longer-term loan.
For example:
$30,000 at 0% APR for 36 months → $833/month
$30,000 at 6% APR for 60 months → $580/month
Even with no interest, some buyers may struggle with the higher payments.
- Limited Vehicle Selection
These special deals generally only apply to certain makes and models, but are usually applied to new models. If you wanted a car other than one of these selected models, then you might only get a lower model that is not what you wanted. - No Cash Rebates or Discounts
Another alternative to the 0% APR is that many dealers offer cash rebates ($1,000-$5,000) or dealer discounts. However, you cannot accept both of the offers.
Example:
If a car dealer offers $3,000 cashback or 0% APR financing, choosing the cashback and getting a low-interest loan elsewhere may save you more overall than a 0% APR loan.
- High Down Payment or Trade-In Required
To qualify, dealers may require a large down payment or trade-in to offset the cost of offering 0% APR financing. If you don’t have enough cash upfront, it may not be the best deal.
How to Know If a 0% APR Auto Loan Is a Good Deal
Before leaping at that 0% financing offer, consider these steps to see if it’s the right choice for you.
- Compare Monthly Payments with a Standard Loan
Use an auto loan calculator to compare:
0% APR financing
A standard auto loan with cashback incentives
If the cash rebate plus a low-interest loan saves you more than 0% APR financing, then go for the rebate!
- Check Your Credit Score
Before applying, check your credit score to see if you qualify. If your score is below 720, your chances of getting 0% financing are low. - Consider Your Budget and Loan Term
If the short-term loan with high payments will stress your budget, a low-interest loan with a longer term might be a better option. - Negotiate the Price First
Some dealerships inflate the vehicle’s price when offering 0% financing. Before discussing financing, negotiate the best car price first.
Alternatives to 0% APR Auto Loans
If you don’t qualify for 0% financing or the offer isn’t ideal, consider these alternatives:
- Low-Interest Auto Loans from Banks or Credit Unions
Credit unions and banks often have rates as low as 2%-4% APR, which will still save you money.
If the dealer is offering cash rebates, you can apply those to your down payment and finance with a low-interest loan instead. - Leasing a Car
If the monthly payments for 0% APR financing are too high, leasing may be an alternative that will be less expensive, with lower monthly payments. - Purchasing a CPO Car
If the 0% APR financing only applies to new cars, you might save more by purchasing a certified pre-owned car at a lower price and financing at a low rate.
Conclusion: Is a 0% APR Auto Loan Worth It?
A 0% APR auto loan can be a great deal—but only under the right conditions.
When a 0% APR Loan Is a Good Deal:
✅ You qualify with excellent credit (720+)
✅ You can afford the shorter loan term (36-48 months)
✅ The monthly payments fall within your budget
✅ You’re not missing out on a better cashback or rebates
When It’s Not the Best Option:
❌ You cannot qualify due to the lower credit score
❌ Monthly payments are too high because of the loan shortening period
❌ The dealership inflates the price or takes away cashback incentives
Always compare financing options, check for hidden fees, and ensure the deal works best for your financial situation before making a decision.
FAQs About 0% APR Auto Loans
- Can I negotiate a 0% APR auto loan?
No, but you can negotiate the car’s price before discussing financing to ensure you’re getting the best deal. - What credit score is needed for 0% APR financing?
Most lenders want a credit score of 720 or higher for 0% APR. - Do 0% APR loans have fees that are hidden?
Some car dealerships make up for not charging interest on the loan by raising the sale price of the car or insisting on high down payments. - Can a 0% APR loan be refinanced?
Yes, but refinancing makes sense only in cases where you can secure better interest rates, or you wish to have the loan term lengthened. - Can I get 0% APR financing on used cars?
Very rarely—0% APR financing is only available on new cars from select manufacturers.