December 9, 2023

Car Auto Finance

Car Auto Finance FOR Everyone

What to Know About 0% APR Car Loans

If you’ve ever bought a car, you know it can be a major financial event. Depending on the type of car you’re looking for, you might spend a significant portion of your yearly paycheck. Feeling daunted? Never fear. A wide number of money-saving incentives can help you find a great value deal.

One such incentive is the 0% APR car loan. If you’re aiming to pay back your car in monthly installments, how does getting that auto loan for free sound? That’s exactly what you get when you find one of these zero-interest car loans. Many dealerships are currently offering qualified customers the opportunity to save money on monthly payments by avoiding interest altogether.

While this type of low-interest auto loan can be a dream come true, it also has its limitations. Strict qualification requirements might mean some individuals interested in a 0% APR loan can’t get one.

Meanwhile, the short repayment periods and limited car selection might mean those who can get one decide against the opportunity. If you’re wondering whether a zero-interest loan is a good option for you, the best way to decide is to learn what it is, how it works, and the drawbacks you might encounter.

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What Is a o% APR Car Loan?

A 0% APR, or annual percentage rate, loan is one where the buyer can pay the loan back over a long period without incurring interest. In other words, the interest rate is 0%. These are also known as interest-free loans or no-interest loans. This means every time you make a monthly payment, you’re reimbursing the seller directly for your purchase without losing money to the lender.

Understanding 0% APR

It’s obvious why 0% APR loans are beneficial to buyers: They allow you to avoid costly loan interest payments. This can be useful if you’re aiming to pay off your vehicle over many months or when you’re making high payments. However, to fully understand 0% APR loans, it’s helpful to consider why they’re useful to the seller as well.

Zero percent APR loans can be useful tools for sellers because they can use them to sell more vehicles. You’re most likely to find a 0% APR loan offer from a captive finance company. This type of company is directly connected to an auto manufacturer.

For example, sellers such as Toyota and Ford have their own financial services or credit company through which a buyer can receive a loan. This means the automotive company can still benefit from a valuable sale even without earning extra credit on the loan.

Here are other ways a dealership or manufacturing company might benefit from offering an interest-free loan:

  • An interest-free loan can entice prospective buyers with good credit to complete their purchase without lowering the price of the vehicle.
  • The dealer can offer the 0% APR deal in situations where a sale might benefit them most, including on expensive new cars or when they have an excess of certain vehicle models in the supply chain.
  • Sellers can use 0% APR deals as marketing tools to attract prospective customers and hook their interest. By the time the customer finds out whether they qualify for an interest-free loan, they might be likely to make the purchase, regardless.
  • If a prospective customer is interested in an interest-free loan, they might be less likely to notice other fees or expenses the dealership adds. In this way, the dealership can make up for the revenue lost.

Do You Qualify for an Interest-free Loan?

Not everyone can qualify for an interest-free loan. In fact, lenders or dealerships might review several requirements, including:

  • Credit score: You might need a credit score of at least 740 to be considered for a 0% APR loan. The minimum credit score depends on the dealership and the car you’re interested in purchasing. If your credit score is lower than this, you might still gain consideration if other elements of your credit history are positive.
  • Outstanding debts: Some lenders might review your outstanding debts to ensure you can pay back your car loans. They might also check your debt-to-income ratio, which can demonstrate your ability to make a monthly payment based on your income.
  • Monthly income: A stable monthly income can help make you a better candidate for a 0% APR deal because it suggests you’ll have the money to make your car loan payments. This means individuals with full-time jobs or a history of adequate monthly earnings from several sources might qualify more easily than those without.
  • Employment history: Even if you have a full-time job that can offer you a stable monthly income, that doesn’t mean the income will continue if you leave that job. For this reason, lenders might check to ensure you have a stable employment history.

The exact qualification requirements might differ from lender to lender, so do your research before you begin negotiations to find out if you qualify. If it doesn’t say on the lender or dealership website what qualifies you to receive a 0% APR loan, you can call to ask.

The qualification requirements might also vary depending on the vehicle you’d like to buy, so it’s a good idea to call with a specific model in mind. You can then research your own credit score and compare. If you meet the requirements, you’re good to go.

You can get pre-qualified for a 0% APR loan before you go to the dealership in person. This can help you avoid interest-free loan promises that are more marketing gimmicks than anything else and connect with sellers who might truly give you the best value on your new car.

You can also review your preapproval options from outside lenders and financing options. This might give you better context for your loan options and prepare you to negotiate for the best possible deal when you arrive at the dealership.

0% APR Auto Loan Limitations

Zero percent APR deals do come with a few important limitations and drawbacks. The good news is once you know those limitations, you can make informed decisions about each purchase decision and whether a 0% APR deal makes sense for your needs.

Vehicle Selection

The dealership might offer 0% APR loans only on certain cars, which they usually determine by whether they think they’ll make that money back with the sale. This means you might face limitations in your car selection if you decide a 0% APR loan is a must-have.

Specifically, you might find you need to purchase a new car or a certain model or trim level. Used car options with interest-free loans might be difficult to come by.

Repayment Options

The repayment plan for a no-interest loan might differ from a traditional one. For example, these types of loans typically have quicker repayment timelines. Without the benefit of accruing interest, the dealership is more likely to benefit from getting your payment back quickly. The specifics of the repayment timeline usually depend on the dealership and your specific offer.

If you have the resources to pay back an auto loan quickly, great! However, if you think you might need to pay back the loan over many months or years, a 0% APR loan might not be the one for you.

Additional Costs

While a 0% APR loan can save you from costly interest payments, it doesn’t protect you from other expenses the dealership or seller might add to your final purchase price.

In fact, if a dealership offers an interest-free loan, it might plan to make back some of that money by adding fees for special features, maintenance, or insurance. Other so-called hidden dealer fees to watch out for include:

  • Extended warranty
  • Dealer documentation fees
  • Reconditioning fee
  • Sales tax
  • Car upgrades

To avoid unnecessary additional costs, do your research beforehand. You can look into traditional car deal add-ons and decide for yourself whether they seem worth the price. That way, you’ll arrive at the dealership well-informed and ready to negotiate.

Speaking of negotiation, remember to advocate for yourself and what you want when deciding the final price of the car, and read everything you sign carefully to identify additional costs.

Interest-Free Car Loans vs. Bonus Cash Rebates

Interest-free loans are just one of a handful of incentives you might come across during your car purchase experience. A bonus cash rebate is another. Understanding how other types of incentives stack up against interest-free loans can help you decide which deal to pursue.

Understanding Bonus Cash Rebates

Like an interest-free loan, a cash rebate is a tool a dealership might use to entice customers to do business.

This type of offer usually involves the automaker giving the buyer of a new car cash, using the dealership as an intermediary. Other names for bonus cash rebates include:

The buyer can then put this cash toward their car down payment, potentially lowering the overall price of the vehicle.

0% APR Car Loans vs. Rebates: Similarities

Rebates and 0% APR loans share several aspects, including:

  • Both incentives can be useful marketing tools for automotive companies and dealerships and might be part of a short-term promotional deal.
  • The seller can choose the situations and cars they’d like to apply the deal to.
  • Both 0% ARP loans and bonus cash might have strict qualifications.
  • The specifics of either bonus offer might depend on the situation, location, seller, and vehicle.

0% APR Car Loans vs. Rebates: Differences

The main differences between 0% APR loans and rebates are:

  • While 0% ARP car loans are generally available to anyone who qualifies, cash bonuses typically apply to and target specific groups of people. For example, sellers might offer special rebate deals for college students, recent graduates, health care workers, or military personnel. This allows the seller to market to a specific group for whom a financial incentive can make a big difference.
  • 0% ARP loan deals generally require the buyer to finance their purchase through the company selling the car. With a cash rebate, individuals can choose to work with an outside lender.

Choosing the Best Deal

Most dealerships limit customers to either a 0% APR car loan or the opportunity for bonus cash. By taking the loan, you might lose out on a great bonus cash rebate deal, and vice versa. To make sure you’re getting the best value for your money, calculate your payment totals for each deal and see which one is better.

How to Decide If a 0% APR Loan Is a Good Idea for You

Now that you understand what a 0% APR loan is and how it compares to other incentives, you might wonder if it’s the best loan option for your purchase. You can ask yourself a series of questions to find the answer.

Do the Repayment Terms Fit Your Budget?

First, figure out whether the repayment terms work with your budget and timeline. Specifically, think about whether you’re equipped to handle high a monthly payment.

Based on the repayment timeline, calculate how much you’ll have to pay each month. You can compare this number with your monthly income and any other financial obligations to ensure you can make it work.

Do Other Financial incentives Save You More?

As we’ve discussed, 0% APR car loans are far from the only type of incentive available. When deciding if this is the best financial option for you, it might help to consider all your options. Beyond bonus cash rebates, you might explore lease deals, other financing deals, and loyalty programs.

What Car Are You Looking For?

Before getting too caught up in the financial intricacies, make sure you consider what type of car you want. Depending on your answer, you might benefit from a different financing option.

For example, if you’re looking for a used car, this might not be the strategy for you. Likewise, if you notice all the cars that come with the 0% ARP guarantee are more expensive than your budget allows, that might be a sign to let it go.

FAQs about No-Interest Car Loans

Here are some answers to common questions about zero-interest car loans:

Can You Get a 0% Interest Rate on a Car?

Yes, it is possible to get a 0% interest rate loan when you buy a car. In fact, it is a common financial incentive in the automotive sales industry. You might even find opportunities to get a 0% APR loan with no money down if you qualify for both offers.

Is 0% APR a Good Idea?

Whether a 0% APR deal is a good idea depends on your specific situation. If you’re interested in buying a brand-new car and have the funds to make high monthly payments, it might be a good deal.

If you’re interested in a used car or if a different incentive better fits your financial situation, you should probably pass on a 0% APR opportunity.

What Does 0% APR for 15 Months Mean?

Sometimes, you might see deals that include 0% APR for a certain period. These are usually promotional offers. If you agree to this type of deal, you won’t pay interest on your loan for the number of months the deal specifies.

For example, if the deal includes 0% APR for 15 months, that means your repayments will be interest-free for 15 months. After that, you might have to pay interest.

What Credit Score Do I Need for a 0% APR Car Loan?

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.

Headshot of Elizabeth Rivelli

Finance & Insurance Editor

Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia,, Forbes, and Bankrate.