It’s not unusual to see offers for 0 percent financing this time of year but it since “something for nothing” seems a little too good to be true you may be wondering if that old adage holds true in this case and whether a 0 percent loan is a good option for you.
First of all, 0% loans are pretty much what they say they are. With approval you can make make payments on a new car over a specific term without paying interest. The only real catch is that you must have excellent credit to qualify for a 0% loan. Generally speaking you’ll need a credit score of 750 or higher to qualify but with excellent credit you’re well on your way.
It’s usually car manufacturers and their finance companies that offer super low or interest free loans. Unlike banks who rely on interest to make money, manufacturers can still make a profit on the vehicle without charging interest. You won’t find these offers on all vehicles though, since they’re usually an indication that a manufacturer is overstocked, discontinuing specific models or is anxious to move certain vehicles quickly.
Since dealers hate to lose money you’ll want to shop carefully. Sometimes the price can be marked up to compensate for lost finance profit and in some cases dealers may offer less for your trade-in and press you harder to add additional items. Another common tactic for manufacturers is to offer a choice between a 0% loan and a cash back rebate applied to the purchase price which amounts to you deciding whether to pay more for the car and get 0 % financing or paying less for the car and finance it at a higher interest rate. The best way to determine which offer suits you is to confirm the rate you qualify for and then do the math to determine your total cost. In some cases you’ll find that taking the rebate instead of 0 percent financing gets you the best overall deal. And remember, if you qualify for a 0 percent loan at a dealership you should be able to get excellent rates from other lenders as well.
On the plus side – 0 percent interest means you only pay for the car and may be able to get a lower monthly payment and overall cost than any other option and a longer repayment term won’t cost you more. On the other hand, you have to be well-qualified with great credit, your selection of qualifying vehicles will be smaller and you might be better off choosing a rebate or cash back offer.
Do your homework, shop around and keep your options open. There’s a great deal waiting for you out there.