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So, how can you save yourself some money and get a zero percent interest car loan? Most cars can be financed at reasonable interest rates. In fact, the average rate on an auto loan in the U.
S is only 4. At the average interest rate of 4. After all, it sounds like such a low rate compared to most other financial products! However, it certainly still adds up over time, especially with such a pricey purchase. These enticing promotions sound almost too good to be true, but are they? Interest-free loans are typically offered and advertised by the manufacturers themselves. It sounds great, after all: you can drive away in a brand new or new to you car, paying it down over a number of years without paying a penny in interest.
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Unfortunately, very few people actually qualify for interest-free auto loans when it comes to the application process. A high credit score is required, excluding most car buyers from snagging this enviable rate. In fact, Tony Le of Edmunds. Those interest-free offers are typically reserved for those who can take on a , , or month loan term instead. The availability of zero percent deals has followed a pretty rigid pattern, said Jeremy Acevedo, senior analyst for Edmunds. Zero percent offers typically peak in the summer months to stimulate sales for the outgoing model year and stay "relatively subdued" in the other months.
It remains to be seen if this pattern will continue in an era of high interest rates. And while such carmakers as Chrysler, Nissan and Toyota largely walked away from zero percent loans in late summer of , shoppers could still find the offers on selected models from carmakers including Ford, Subaru and Kia.
Carmakers advertise the no-interest loans in commercials, at dealerships or on their websites. The Edmunds Incentives and Rebates page also highlights zero percent financing offers and other promotions for the month. Sometimes a dealership will offer its own version of zero percent financing. In this case, the dealership opts to pay the interest on your loan, either to sweeten a deal or as an incentive for you to make a large down payment. It typically occurs when a buyer already qualifies for a loan with a low annual percentage rate APR and the amount being financed is a figure the dealer deems reasonable.
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As noted, zero percent loans are typically reserved for buyers with excellent credit. The fine print on automaker websites often says things like "for qualified buyers" or "based on Tier One credit. And the range itself can vary from one automaker to another, so it's a good idea to call the dealership for the car you're considering to determine the requirements. If your score is slightly lower, zero percent offers are still worth looking into.
There have been cases of people, despite a lower credit score, getting approved because of a solid history of making payments on time and loyalty to a car brand. There are times when the automaker gives shoppers a choice between bonus cash or a loan with a very low interest rate.
What You Need to Know About Zero Percent Car Loans
Bonus cash would usually be the way to go, but when it comes to zero percent loans, the cash has to be sufficient to offset the finance charges the buyer is saving. You then have a choice: a bonus cash incentive or a zero percent loan with no additional discount. Any amount of bonus cash that's less than that makes the zero percent loan the better option. Use this calculator to input your own scenarios and see what option works best for you. There's also a third option: Take the bonus cash and refinance the loan later at a lower rate, assuming you can find one. If you planned on buying a car for cash lucky you , there might still be some value in taking out a zero percent loan.
The biggest benefit is that it allows you to keep your money free for other purposes, such as an emergency fund or investments. There is no penalty for paying off the loan early. Having financed a car appears as a positive mark on your credit report.