Are no-interest car loans legit? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by offering interactive financial calculators and tools as well as publishing objective and original content. This allows you to conduct your own research and compare data for free to help you make informed financial decisions. Bankrate has agreements with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that are advertised on this website are provided by companies that pay us. This compensation can affect the way and when products are featured on this website, for example such things as the order in which they may appear within the listing categories in the event that they are not permitted by law for our loans, mortgage, and other home loan products. This compensation, however, does have no impact on the information we publish, or the reviews you see on this site. We do not include the entire universe of businesses or financial deals that might be open to you. SHARE Adam Gault/Getty Images
3 min read Published September 27 2022
Writer: Kellye Guinan. Written personal and Business Finance writer Kellye Guinan is an editor and writer on a freelance basis with more than five years of experience in personal finance. She also is an employee full-time at her local library where she helps people in her community gain access to information on financial literacy, among other subjects. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are committed to helping readers gain the confidence to take control of their finances through providing concise, well-studied information that breaks down otherwise complex topics into manageable bites. The Bankrate guarantee
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Therefore, this compensation may affect the way, location and when products are listed and categories, unless it is prohibited by law for our mortgage or home equity products, as well as other home lending products. Other elements, such as our own proprietary website rules and whether or not a product is offered in your region or within your own personal credit score could also affect the manner in which products are featured on this site. We strive to provide an array of offers, Bankrate does not include details about every credit or financial item or product. Many dealerships and manufacturers advertise no-interest car loans -- so yes they're legitimate. However, it's difficult to be eligible for a 0 per cent annual percentage rate (APR). You'll require a high credit score. Additionally, you'll have to pay for other charges, so don't expect zero-interest financing to come at no costs. How does 0% financing work and the reasons why it's legitimate If you take out an auto loan with an APR of zero percent, you won't pay interest over the entire loan term. It may sound too good to be true, but 0 percent financing isn't uncommon. It's offered through captive finance companies that the manufacturer owns. The manufacturer utilizes these to draw in buyers however only a handful of people can qualify. In order to make up for money lost on interest, this type of financing is only available to new models. Buyers must still pay for documentation, title and license fees. Dealerships might also try to force on you to pay, or offer . These aren't mandatory, so be firm when you decide not to. And don't be afraid to discuss the total cost. Zero percent financing is only one aspect of the process for buying a car. What are the requirements to be eligible for 0% financing Each lender has unique eligibility criteria. But, following these guidelines will increase your chances of approval: is the primary requirement. The lenders want to make sure they have near-perfect history of making payments and managing your debt before they offer you no-interest financing. Credit scores of 781 and more is the best deal on financing, but you can still qualify for a loan if your score falls between 661 to 780. A steady source of income is essential. Because your loan duration could be 48 months, which could result in high monthly payments, a lender will require proof that you have the funds to make your car payments. It is possible that you will require a bigger down amount. Even if there isn't a requirement to pay a deposit to qualify for financing, many lenders require a large down payment in order to be eligible for a zero percent rate auto loan. The lenders also require an extremely low . A low DTI confirms your income is enough to pay for this new debt, in addition to any other payments that you could be making. When to get 0% financing No-interest financing is a good choice if you already plan on buying a fresh or (CPO) vehicle. Manufacturers typically don't provide it on their base models, so you'll be paying for additional options. If you're eligible for financing, you'll need to separate from the financing -- and then visit the dealership with financing from a lender. In this way, you'll be able to estimate the amount you'll save on interest with the 0% financing. If you're able to make the monthly cost and you know you'll save a few thousand dollars on the car you'd like to purchase, then this is the way to go. In other cases, you should consider it alongside other financing alternatives. There are some disadvantages to a no-interest auto loan A no-interest car loan isn't the only option to save money. Dealers and manufacturers are looking to make up for the loss of money. You can expect 0% financing to only be available on select models with additional featuresas well as for shorter loan terms. Manufacturers can offer only limited loan terms that include no-interest car loans. The standard period is between 24 and 48 months. The loans of 60 or 72 months are not common. Since the loan term is shorter the monthly car payment will be higher . Make sure you are able to afford the monthly payment. Cash rebates or bonuses may not be readily available. While you won't pay anything in interest, you'll miss out on . If total interest is less than the bonus or rebate cash, a no-interest loan won't save the money. Most no-interest financing is only for new cars beyond the base model . Some manufacturers may also offer it to . The bottom line No-interest financing can be a solid method to save on a new car. If you've already made plans to get a pricier model, you could avoid paying a few thousand in interest. And if you don't mind paying a greater monthly amount on a shorter loan duration, you'll be protected from paying more for your car than what it's worth. But, only a handful of people qualify for the car loan that is not subject to cost of interest. If you are, you might not save as much as you would receive through bonus cash or a new car rebate. It's a good idea to secure financing before you start shopping and also to weigh the amount you'll spend on interest versus the savings you'll get with other alternatives. Related Articles: SHARE
Written by personal and business finance Contributor Kellye Guinan is a freelance editor and writer with over five years ' experience within personal finance. She is also a full-time worker at her local library where she helps people in her community get information on financial literacy, among other topics. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers to take control of their finances through providing precise, well-researched and detailed information that breaks down otherwise complex subjects into bite-sized pieces.
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