Home > Auto Loans > Can I Really Get a 0% Car Loan?

Comments 0 Comments

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.

A Car Payment or a Mortgage Payment?

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.

Auto Loan Financing

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 two scores, 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:

Image: moodboard

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team