It's an incentive to increase sales. The company is still making money on the price you pay for the car (this is why many times you will see either a rebate or a low rate offered). Most people finance their vehicles, and an extremely low rate incentivizes them to go in and purchase.
When auto manufacturers offer 0 percent financing, they may try to make up for “lost” income in other ways. For example, a dealership may push hard to sell you add-on products, like extended warranties or gap insurance, with your vehicle.
Your 0% APR deal could be canceled
Even with a 0% APR card, you'll still have to make monthly minimum payments — usually a small percentage of your balance. And if your payment is late, even by a single day, your card issuer could cancel the 0% offer and reset your card's interest rate to the ongoing APR.
But there are three main reasons why banks and credit unions offer 0% APR credit cards: To entice new customers. Zero percent intro rates are eye-catching, and banks can market their other products to new cardholders in order to make money. To encourage more spending.
A 0% APR credit card offers no interest for a period of time, typically six to 21 months. During the introductory no interest period, you won't incur interest on new purchases, balance transfers or both (it all depends on the card).
Key Takeaways
You usually need a very high credit score to qualify for zero interest loans. Zero interest car loans usually come with a higher price tag, expensive extras and strict repayment terms. If you miss even one payment, you lose your 0% interest rate and get charged late fees.
A credit card with an introductory 0 percent APR can help you manage new debt or pay off old balances. However, a 0 percent intro APR card can hurt your credit if it causes you to carry a higher balance than usual or if you carry your balance beyond the introductory offer period.
0% APR auto loans are reserved for "well-qualified" buyers.
In most cases, "well-qualified" refers to borrowers with a credit score of 740 or higher. If a borrower isn't in this credit bracket and applies for the 0% APR offer, they could be taking a hit on their credit score that could have been avoided.
If you're disciplined to make on-time payments and pay off your balance before the intro period ends, then you will likely do well with a 0% APR credit card. However, if the 0% tempts you to overspend, you may face paying high interest charges if you're still carrying a balance after the intro period.
A down payment may help you to more easily qualify for an auto loan, especially if you have lower credit scores. Without a down payment, the lender has more to lose if you don't repay the loan and they need to repossess and sell the car. Cars can begin losing value as soon as you drive off the lot.
Yes, just like the price of the vehicle, the interest rate is negotiable. Dealers might not offer you the lowest rate that you qualify for. To get the best interest rate, shop around with multiple lenders and negotiate.
When your intro APR ends, your credit card's regular APR will kick in on any remaining and new balances. Knowing when your promotional period ends helps you pay off your balance beforehand and keeps you from being surprised by mounting interest on a residual balance.
If you have a low-interest loan or 0% financing, there is little to no benefit to an early payoff. The same is true if you're close to the end of the loan. If you don't have an emergency fund, use your extra cash to start one before you pay off your car loan.
Dealers make money off in-house financing because they mark up your offered rate.
There isn't one specific score that's required to buy a car because lenders have different standards. However, the vast majority of borrowers have scores of 661 or higher.
Typical Credit Score Requirements
Excellent (750-850): Most likely to qualify for 0% APR. Good (700-749): Possible qualification, but not guaranteed. Fair (650-699): Unlikely to secure 0% APR deals.
To qualify for a 0% APR car loan, you generally need excellent credit, a solid income and a low debt-to-income ratio. But even if you qualify, your vehicle options may be limited.
Just because there's no interest accruing on your balance doesn't mean there are no payments. At the very least, you're still responsible for making the minimum payment each billing cycle to keep the account in good standing.
0% intro APR cards require good to excellent credit
This means you'll need a FICO credit score of at least 670 or a VantageScore credit score of at least 661. If you have very good or excellent credit, which means a FICO score of at least 740 or a VantageScore of at least 781, your chances of approval are even higher.
It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.
Key Takeaways
Zero-interest loans, where only the principal balance must be repaid, often lure buyers into impulsively buying cars, appliances, and other luxury goods. These loans saddle borrowers with rigid monthly payment schedules and lock them into hard deadlines by which the entire balance must be repaid.
Dealerships love to offer 0% financing as a way to get customers in the door, but it can actually be quite difficult to qualify for one of these loans. They are typically only offered to buyers who have excellent credit.
Called the five Cs of credit, they include capacity, capital, conditions, character, and collateral. There is no regulatory standard that requires the use of the five Cs of credit, but the majority of lenders review most of this information prior to allowing a borrower to take on debt.