Blog Home > Loans > Auto Loans > Can I Really Get a 0% Car Loan?
PublishedJune 25, 2014 | min. read
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Is 0% auto financing just a scam? That’s the question that popped in my mind recently when my mother-in-law, who is fastidious about her finances, was turned down for that rate when she bought a new car. If someone like her, who has a history of no missed payments on any of her bills and very minimal debt, can’t qualify, who can?
While it’s not a scam, interest-free financing isn’t always easy to get. And even if you do qualify, you may not want it.
“Typically 0% loans are used by the manufacturers as a low cost leader to generate showroom traffic,” says automotive credit expert Matt Briggs, CEO of CreditJeeves.com.
“Only one out of 10 consumers actually qualifies for 0% and there are many factors that come into play,” warns Tony Le, pricing manager with Edmunds.com. There are typically two hurdles consumers who don’t want to pay interest on a car loan have to overcome.
High Scores Pay Off
The first is the high credit score that is often required.
According to Experian Automotive, the average credit score of borrowers who secured interest rates of 1% or less on their auto loans in the first quarter of 2014 was 748. (The scoring model used was VantageScore 3.0, which goes up to 850.) Only 8% of borrowers qualified for loans with rates of 1% or less, says Melinda Zabritski, senior director of automotive credit for Experian Automotive.
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The other big hurdle? The monthly payment.
The average vehicle loan term is now 66 months, according to Experian, and the average amount financed is close to $30,000 ($27,612 to be exact). But some interest-free offers only extend to a 36-month loan. For a $30,000 loan, that would mean a monthly payment of $833 a month. “That’s the catch,” say Le.
It’s not always the case that you have to take a short-term loan, however. Some manufacturers offer 60- or even 72-month financing with no interest.
“When you are negotiating, are you negotiating rate, or are you negotiating payment?” asks Zabritski. “If you are going to try to get a lower payment, (no-interest financing) might not be available on longer-term loans.”
One more potential pitfall: You may forgo the cash-back rebate in order to secure that rock-bottom rate, Le warns. Edmunds.com offers a calculator that compares APR with the rebate to figure out which is the better deal.
The Best of Both Worlds
Even if you don’t qualify for a 0% loan, you may be able to get a low interest rate on a longer-term loan that fits your budget. Here’s what kind of rates consumers pay, on average, in different credit score ranges.
As you can see from the table, while the difference between the average monthly payment consumers with poor credit are paying versus those who have excellent credit is only $35 a month, over the life of the loan, it adds up to $6,470 — and that is a lot!
While there are consumers who get loans at 0% today, “anything between 2% – 3.5% is a good rate,” Zabritski advises.
If you’re not sure of your credit standing, you can check your credit score for free at Credit.com. Along with one credit score, you’ll also get monthly updates and an action plan for your credit. The best time to check it is before you need to buy or replace your vehicle, since fixing mistakes or improving your credit can take time.
In addition, it’s a good idea to line up a loan before you walk into the dealership. If your dealer can beat that rate, great. If not, you know you’re covered. Credit unions (a popular source of low-rate vehicle financing) are even able to work with consumers across the country. You can shop for a nationwide credit union car or truck loan here.
More on Auto Loans:
- Are There Car Loans for People With Bad Credit?
- What to Do If You Can’t Make Your Car Payments
- Top 5 Worst Car Buying Mistakes
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FAQs
The exact credit score you might need to qualify for a 0% APR loan varies depending on your situation. Many lenders require a minimum score of at least 700. Others require excellent credit scores, such as 720, 750, or even 800.
What credit score do you need to put 0 down on a car? ›
Your credit score is crucial to determine your eligibility for a no down payment car loan. Most lenders require a FICO credit score of at least 680 before you can qualify. If your credit score falls below 680, improve your credit score before you apply to help you qualify in the future.
Is 0% APR worth it? ›
While 0% APR financing seems like a great deal, it's not always the best option when you consider your budget and overall financial situation. You'd prefer a used car: With a 0% APR deal, you'll likely have to purchase a new car, which may cost more than you can afford.
Can you get a car loan with a zero credit score? ›
You can still find auto loans if you have no credit history, but it pays to compare your loan offers. To decide if an offer is worth it, get your monthly payment options and use a car loan calculator to see how much you'd pay in the end.
Can you get 0 percent interest on a car loan? ›
Not everyone will have the option to take a 0% APR car loan. These deals are generally only offered to buyers who fit specific criteria. Good credit: You'll likely need a good or excellent credit score to qualify for a 0% APR car deal.
How to get a 0% APR? ›
To qualify for a 0% offer, you'll typically need good credit or better (generally defined as a score of at least 690). Zero-percent offers are pretty common on cash-back credit cards as well as on cards specifically marketed as balance-transfer or low-interest options.
What is the easiest car company to get financing? ›
Automakers such as Ford, Kia, and Hyundai are known for working with borrowers who have lower credit scores. In addition, CarsDirect has a network of dealers that specialize in bad credit car loans whether you're considering a new or used car.
Should you pay off a zero percent car loan early? ›
If the interest on your car loan is very low or you got a special zero percent interest rate, paying it off early offers little advantage. This is especially true if the interest rate on your car loan is less than you could make investing the money.
What is the lowest credit score to get a car? ›
Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. The minimum credit score needed for a new car may be around 600, but those with excellent credit often get lower rates and lower monthly payments.
Why avoid zero percent interest? ›
Avoiding interest is always a good goal, but zero-interest loans can lead buyers to overspend and come with a lot of strings attached. Carefully evaluate your purchase—is this what you intended to buy, and will you realistically pay off the loan within the given time?
A 0% APR is not good for your credit if you overspend, as high credit utilization and missed payments hurt your credit score. If you end up carrying a balance from month to month after the 0% period ends, you will also owe expensive interest charges, making it hard to pay your bills on time and build credit.
Is it hard to get 0 APR? ›
0% finance deals are relatively rare and often available only for a limited time, which means finding them in among all the other hundreds of finance deals can be quite tricky.
What credit score qualifies for 0% financing? ›
In order to qualify for a zero interest loan, you'll need a very high credit score (usually 740 or higher). The exact range will vary depending on who you're shopping with, but they're not handing out this type of loan to someone who doesn't already have a proven track record with debt.
Is $2000 a good down payment on a car? ›
If you're considering a car that costs $25,000, putting down between $2,000 and $4,000 would be wise. However, the true answer to this question depends on your negotiation strategy. If you can negotiate a lower price or better terms, putting more money down may not save you much interest.
What percent should you put down on a car with no credit? ›
Average Down Payment on a Car with No Credit
Just like customers with bad credit, customers with no credit should still expect to put down at least 10% or $1,000, whichever is higher. The good news is that paying off on auto loan is a good way to establish credit.
What is the lowest credit score to buy a car? ›
Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. The minimum credit score needed for a new car may be around 600, but those with excellent credit often get lower rates and lower monthly payments.
Is 550 a good credit score to buy a car? ›
Buying a car with a 550 credit score is definitely doable with the right approach. In this guide, we'll walk you through each step of the process, from assessing your financial situation to sealing the deal.
Can I buy a car with a 628 credit score? ›
The short answer is yes, but you're likely to get a significantly higher-than-average interest rate.
What credit score do you need for Ford 0 financing? ›
Even if you have fair credit, Ford financing may be possible. It might approve you with a score as low as 620 to 650, albeit at a higher interest rate. You can prequalify with Ford Motor Credit online. Although prequalification doesn't guarantee approval, it will let you know where you stand.
