0% APR Car Deals: What's the Catch?

When you take a car loan, you borrow money to pay for a car, which is obvious. But the bank does not give you this money for free. On the contrary, you pay interest and fees to the bank that loaned you the money. So, what does 0% apr financing mean? A 0% APR car loan or an interest-free car deal is car financing where you pay no interest. You borrow money from a bank, but you don't pay anything extra for it. Your monthly payments reimburse the lender for the money they paid to the car seller, but no extra money goes into the lender's bank account.

When you repay the loan, you reimburse the lender for the money they paid to the car dealer on your behalf. The interest you pay helps the lender make a profit.

If you don't pay interest, you can pay the same amount as a cash buyer, although you divide your payments over a more extended period.

How does 0% APR work?

Financing a car without interest sounds almost too good to be true. But these financing offers are tools automakers can use to sell more vehicles.

Lenders that finance cars 0% apr are known as captive finance companies and are linked to automakers. Some captive lenders include Ford Motor Credit, GM Financial, Nissan Finance, Toyota Financial Services, and more. So if Ford wants to sell more F-150s due to excess inventory, it could offer zero-APR loans to select borrowers through its financing arm.

Zero-interest car loans appear cheaper, but that's not always the case. When automakers offer 0% apr car deals, they may try to make up for "lost" revenue in other ways. For example, a dealer may work hard to sell add-on products like extended warranties or gap insurance with your vehicle. You may also have to forgo benefits like discounts that would lower your purchase price.

What APR can I get?

The APR available to you depends on several factors, the most important of which is your credit rating. If you have excellent credit, your interest rates will be lower, giving you a lower APR.

If you have a low credit score (up to 500), you may only be able to approve loans with an interest rate of up to 15-18%, meaning the total interest you can access is much higher.

The other thing that significantly affects the 0% finance car deals you can access is the type of vehicle you are purchasing.

This is something to consider when deciding to buy a vehicle on credit. When you buy a used car, the APR is usually higher than that of a new vehicle because used vehicles tend to be viewed as more of a liability to lenders, with a higher likelihood of having problems that can render the vehicle unusable, resulting in you defaulting on the loan.

How to get 0% APR on a car loan

Zero percent financing is generally reserved for borrowers with excellent credit ratings - typically classified as having a credit rating of 800 and above. Each lender also defines excellent credit, and qualification requirements may vary from vehicle to vehicle. You should check your credit reports yourself before you start purchasing auto financing.

Ask what criteria you need to meet to qualify for interest-free financing on a specific vehicle. Because zero APR qualification standards vary widely, it's best to call the car dealer in advance. Aside from your credit history, a car lender may consider other factors when considering your application, such as:

  • Negotiate the best deal first. Before you get involved with financing, take the car for a test drive and negotiate the best deal for the vehicle.

  • Find out if you qualify. At this point, the merchant will review your credit history to determine if you qualify for 0% financing. There is no set credit score set in stone that will determine if you qualify for 0% financing. But a credit score of about 740 or higher can help you get the lowest interest rate, like 0% financing.

  • Be ready to back out of the deal. If the dealer states that you won't get the credit with 0% financing, you shouldn't necessarily back out of the agreement. But you might consider whether you are happy with the new tariff that the retailer is proposing to you instead. If it's too high for your taste, remember that you can check other options.

  • Check out other retailers. You can consider buying a car from another dealer. You can also go to the dealer primed with a credit union or bank financing deal to use as a negotiating point if needed.

Regardless of your credit history status - good, bad, fair, or excellent, you should also take the time to obtain pre-approval from outside funding sources. Pre-approval can help you compare your options and give you a backup plan if you don't qualify for the automaker's exclusive offer.

Limits of 0% APR Financing

Zero APR financing could be a good deal for some borrowers. Still, there are pitfalls to watch out for when considering this type of funding.

  • Limited choice

Interest-free financing may only be available for specific vehicle types. Firstly, the car you buy almost certainly has to be new. Automakers also tend to reserve special financing deals for vehicle models that have excess inventory that they need to move.

  • Limited repayment options

Depending on the offer, your repayment options may be more limited with 0 percent financing. You often have less time to repay the loan than you would otherwise have. Of course, there's nothing wrong with paying off a loan quickly, but you should be sure that you can afford the higher monthly rate without straining your budget.


Zero Percent Car Financing is an excellent incentive for qualified buyers already in the market for a new car. 0% financing should not be the sole criterion for your decision to buy a new car. If you've planned your new car purchase correctly and can find a 0% loan deal that suits the budget, this is a great way to save money on car loan interest.