Buying a car without interest is best achieved by qualifying for 0% APR financing from manufacturers, which typically requires a credit score of 740-850, or by paying with cash. These deals are usually reserved for new or certified pre-owned (CPO) vehicles and often feature shorter terms (36–60 months).
Come to the dealership with a preapproved financing offer from a lender. By doing this, you can calculate how much you'll save on interest with 0 percent financing. If you can afford the payment and know you'll save a few thousand on a car you want to buy, no-interest financing is the way to go.
One of the simplest ways of how to avoid paying interest on a car loan is to pay off your loan early. Making extra payments – a little extra each month or occasional lump sums – can significantly reduce the principal loan balance on your loan.
Basically any cars that have 0% APR deals are selling slowly and the 0% APR is similar to directly cutting a few thousand off the sale price. So for example if a car is selling slowly, instead of decreasing the price by $5k, they may offer 0% APR. So yes, you can get a auto financing at times with no interest.
Buying with cash means paying the full price of the car upfront, avoiding financing or leasing. This means there's no interest or monthly payments, which saves you money in the long run. You also own the car outright from day one and may be able to negotiate a better deal – great if you have the money to spare.
Let's look at some things to keep under your hat while you explore the lot.
0% financing is typically reserved for buyers with excellent credit. Dealerships use it as bait to get folks in the door, but only the most creditworthy borrowers walk away with the deal. If your credit isn't top-tier, expect to be offered a different loan option—possibly with higher rates.
The rule addresses three components of car-buying: the (20%) down payment, (three-year) loan term and (8% of) your monthly budget. Following the rule could help you avoid a car purchase that overextends you financially.
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Take-home pay is the amount you make each month after taxes, so if you bring home $3,000 monthly after taxes are deducted, it's likely you can comfortably afford a $300 car payment.
While it's possible that interest rates could return to 3% territory in the future, it's highly unlikely that it'll happen anytime soon. In fact, some experts say it won't happen again without another major economic shock like the one caused by the COVID-19 pandemic.
Step 1: Determine Your Budget
Start by calculating your gross monthly income. For example, if you earn $60,000 per year, your gross monthly income is $5,000. According to the 20/3/8 rule, your maximum car payment should be 8% of this amount, which is $400 per month.
How much would a $30,000 car cost per month? This all depends on the sales tax, the down payment, the interest rate and the length of the loan. But just as a ballpark estimate, assuming $3,000 down, an interest rate of 5.8% and a 60-month loan, the monthly payment would be about $520.
“Cars, trucks, RVs, boats, and everything that has motors and wheels go down in value,” Ramsey wrote recently. “NEVER finance them, because they go down in value and you get stuck in them. Don't let debt trap you in something that's losing value every day. Save up, pay cash, and own it outright.”
Many car buyers ask about 0% APR financing — one of the most attractive offers available in the market. However, this type of financing is typically reserved for buyers with excellent credit. In most cases, lenders require a credit score of at least 700 to 750 to qualify for zero-percent financing deals.
Ramsey's car-buying rule is that you shouldn't buy a brand-new car unless you have a net worth of at least $1 million.
For a $70,000 vehicle, assuming a $10,000 down payment, 5% interest, and 72 months, your payment would be approximately $967 per month.
As a general rule, you should pay 20 percent of the price of the vehicle as a down payment. That's because vehicles lose value, or depreciate, rapidly. If you make a small down payment or no down payment, you can end up owing more on your auto loan than your car or SUV is worth.
For years, dealerships have been using a tactic called a “four square”—a sheet of paper divided into four boxes where the salesperson will write down your trade value, the purchase price of the vehicle you're buying, your down payment, and your monthly payment.
Pay with cash
Paying for your new or used vehicle in cash eliminates your interest costs and finance fees, which can save you thousands. It also means you will not make monthly car payments, which lowers the “transportation” line item in your monthly budget.
A little preparation, and knowing some of the common car dealer tricks used by salespeople, can help you close on a car with confidence.
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