0% Financing on Car: Too Good to be True?

0% Financing on Car: Too Good to be True?

April 24, 2024

If you're thinking about buying a car, you might have seen some car brands advertising low-interest deals and bonuses. Some brands even offer loans with 0% interest. This means you can borrow money to buy a car without paying any extra interest.

But, is getting a 0% interest loan as great as it sounds? Although 0% financing might seem like an awesome deal, there are important details you should think about before deciding on this car finance offer.

To help you figure out if a 0% financing deal is a good fit for you, we'll explore all the important aspects of these offers.


What does 0% car financing mean?


0% financing means you can get approved for a loan without paying any extra interest. But here's the catch - not everyone can get it. These deals usually go to people with really good credit scores. 

Also, you might not be able to haggle as much on the car's price. So, while 0% financing can be awesome, it's important to check the details and understand what you're signing up for.

Such deals help car dealerships and carmakers to sell old cars and make room for new ones. The way car companies profit from a 0% deal is straightforward: They don't make money from the loan interest but from selling the car itself. Dealers might offer you additional things like extended warranties to make up for it.


How to get 0% financing on a car?


0% financing sounds like an amazing offer, but there's a catch: you need to get approved. To qualify for 0% financing, you typically need a high credit score. This usually means having a score of at least 725, which is considered "very good credit." Sometimes, you might even need an "excellent credit" score, starting at 760.

However, getting 0% car financing with less-than-perfect credit is possible. Even with a lower credit score, you might qualify for special car deals if you can show you'll pay your monthly dues on time throughout the loan period. You might need a co-signer, a bigger initial payment, or something valuable to secure the loan. 

Here’s why 0% financing may not be the best option for you:


1. Limited choice of vehicles

Your choices are restricted when it comes to 0% financing. Dealers and manufacturers typically offer it to clear out old inventory or boost sales of slow-moving cars. They usually pick the most profitable models for 0% financing. 

So, if you hope to snag the cheapest model with 0% interest, you'll probably be let down. These models often come with pricey add-ons that increase the overall cost way beyond the base price. While it might seem like a great deal, you might not find the exact car you want.


2. Eligibility

The main downside of a 0% loan is meeting the requirements. If your credit score and history don't match exactly what the car company wants, you won't qualify. This might mean wasting time at the dealership and leaving empty-handed.


3. You can't pick the loan duration

You can't pick the loan duration with 0% financing offers. Often, the 0% interest rate lasts for only a set time, and then a higher rate applies. This sudden change can mess with your budget and might push you into choosing a shorter loan period. If you wanted a longer term for lower monthly payments, this isn't great news. To keep payments down with 0% APR, you might need to make a bigger initial payment and aim to pay off the loan before the higher rate starts.


4. 0% financing deals on new cars only

You usually only get 0% financing deals on new cars. For instance, you might see 0% deals on 2023 cars when the 2024 models hit the market.

So, you won't often find these deals on used cars, missing out on potential savings. Simply put, these deals aren't available for used cars. While the used car market has great deals, you won't find this specific offer there.


How to get a good deal without 0% financing


1. Get pre-approved 

Before car shopping, see what rates and deals you qualify for. Approval Genie can help you in finding suitable financing and even get you pre-approved within hours. Having a pre-approval will show you which cars you can consider, saving you time and hassle.


2. Improve your credit score

Usually, 0% financing is for people with top-notch credit scores. But many car buyers don't fit that profile. Thankfully, you can still get good deals with less-than-perfect or even bad credit. However, it's smart to aim for a better credit score over time.


Read: How to Improve Your Credit Score


3. Consider used cars

You can find great deals in the used car market, even without 0% financing. Buying a used car from a dealership or online seller means the car has been checked and serviced by professionals.


Read: 8 Important Tips for Buying a Used Car in Canada


In conclusion, 0% financing deals are great incentives for those looking to buy a new car. However, don't base your entire decision on this offer alone. If you've planned well for your new car purchase and find a 0% deal that fits your budget, it's a fantastic way to save on interest costs. But also compare the total cost of the 0% financing with a regular car loan. Sometimes, a regular loan can end up being cheaper overall.