0% APR Car Deals: What’s the Catch?

The dealers’ and manufacturers’ advertisements for 0% APR car finance deals are tempting if you’re in the market for a new car. But are they really a good deal? You’ll have to read the fine print and do the math to find out if it’s the best option for you. We can help you understand whether the deals are really as sweet as they seem.

Current 0% APR car deals

The availability of 0% APR financing deals varies by manufacturer, and there may be regional offers based on where the dealership is located. We’ve gathered currently available financing offers below, but you should check with your local dealers and the car manufacturers’ sites for the latest information. These deals are available as of Feb. 21, 2022, and based on the zip code of LendingTree’s Charlotte, N.C., headquarters.

What is a 0% APR car deal?

Interest is the cost you pay for borrowing money — or, in this case, to pay for a new car, truck or SUV. It’s a common feature of all loans. The interest rate is a percentage of the principal, or the amount you borrow, that the lender will charge you.

The annual percentage rate, or APR, is the yearly interest rate plus any lender fees, such as an origination fee — it’s the true cost of borrowing money. The APR is typically a bit higher than the interest rate because of those lender fees. Keep in mind, though, that the APR does not include any dealer fees.

Part of your monthly car payment goes to pay the interest to the lender, and part goes to paying off the principal amount of your loan. So when you’re shopping for a 0% APR car deal, compare interest rates and APR rates to get a sense of the total cost of the loan.

When you see a deal for 0% APR, it means you won’t pay any interest on the loan, which means that you’re essentially borrowing money for free — the full amount of every payment you make is applied to your loan. You typically need excellent credit to qualify for these deals.

How 0% APR car deals work

Why would a car dealer offer 0% financing on new cars? It’s a way to sell more cars.

The 0% car finance deals are usually only available on new cars from the manufacturer’s captive finance company — such as Toyota Financial Services or Ford Motor Credit Company — and only apply to the manufacturer’s cars.

These deals are often offered when there’s an excess supply of certain models, or perhaps at the end of the model year to make way for next year’s vehicles on the lot. Low APR deals are also a common marketing gimmick to get customers in the door. But even if you’re unable to qualify for the 0% APR deal, you could still obtain a competitive interest rate with the dealer’s captive lender. Keep in mind that only those with excellent credit are most likely to qualify, so if the 0% APR is a deal-breaker for you, find out if you’re eligible before you test drive a car you want to take home.

It’s a good idea to get prequalified for an auto loan before you go to the dealership. While getting prequalified loan offers from other lenders won’t give you a 0% APR in most cases, you can still get an idea if you’re eligible for the lowest rates and get a sense of how lenders see your financial health. With a prequalification in hand, you’ll know if the dealer’s loan offers are competitive if you don’t qualify for the 0% APR.

It’s also important to watch out for other ways the dealer may add fees and expenses for items you may not need, like an extended warranty or add-on products. You’ll also likely have to choose between 0% APR financing and any cash back rebate offers, since most dealers won’t allow you to combine both deals.

How to get a 0% APR car deal

The higher your credit score, the better your chances of qualifying for a 0% APR car loan.

Common criteria to qualify include:

• Very good credit: According to Experian, you’ll need a credit score above 740 to qualify for the top financing rates for new cars. However, you may qualify with a lower score, since lenders also consider your entire credit history, as well as different versions of your credit score, including your FICO Auto Score. Lenders will also consider the types of accounts you’ve opened, how long they’ve been open, the credit limit or loan balance, the account balance and your payment history.
• Low debt-to-income ratio: Lenders want to see that you have the financial ability to make the monthly payments, based on other obligations you already have. When checking on it, they’ll calculate your debt-to-income ratio, which shows your monthly debt payments compared to your gross monthly income.
• Stable monthly income: Although your employment history and current income won’t affect your credit score, lenders will often want to see that you currently have a job or proof of steady monthly income.

If you’re on the lookout for 0% APR car financing, monitor websites at your local dealers and any manufacturer’s sites for vehicles you have in mind. You may be able to sign up for alerts on new offers.

  Learn more about how to improve your credit score.

Limitations of 0% APR car deals

Although the idea of buying a new car with no interest is very attractive, there are drawbacks to 0% APR deals. Make sure you know the limitations and how they could impact your financial picture.

Limited selection: Usually these deals are offered on only new cars, not used ones. In addition, they may be offered only on certain models or trim levels, not an entire manufacturer’s lineup.

Shorter repayment terms: Often, the 0% APR is offered for shorter-term loans, which means that even without interest, the payment will be higher than with a longer-term traditional loan.

Additional costs passed on: Although you may save on interest, the dealer may try to pass on additional costs through extra services or features such as maintenance packages or GAP insurance.

0% APR vs. cash back offers

Dealerships may offer either a cash back rebate or 0% APR — but not both, usually. As such, you’ll have to be prepared to make the best choice for your financial situation. Sometimes, it makes more sense to opt for the cash back rebate instead.

The best thing to do is look at the total cost over a certain period. As the example below shows, three years into a five-year loan, taking the cash rebate and borrowing less money results in a lower total cost of the loan; however, the monthly payment is higher. The choice you make will depend on what’s important to you — the lower monthly payment from the 0% APR deal may or may not be worth the higher overall cost.

When a 0% APR deal isn’t worth it

Even though it might sound enticing, sometimes a 0% APR deal won’t be the right fit for you. There are some scenarios where it wouldn’t make sense:

• The repayment term is too short: A common feature of 0% APR is short repayment terms, so the monthly payment can be higher than a longer-term loan. Double-check that you can pay it off in time given your income and other obligations. In the table below, taking the 0% APR deal commits you to a $703 monthly payment. So even though you pay more in interest over 60 months, the lower payments may be more manageable in your budget.

• Cash back rebates offer you more savings: In our cash back comparison table above, the cash back option saved more money over the long term. Ultimately, it’ll depend on the amount of the rebate and the term of the loan. Don’t be tempted by the lower monthly payment to spend more money than you need to.
• You want a used car: The 0% APR financing deals are usually only available for new cars, so if you’d rather have a used car you’ll have to look for other financing options.

Frequently asked questions about 0% APR car deals

Can you get both 0% APR and no money down?

Yes, there are 0% APR offers combined with no money down if you qualify for the advertised offer.

Is 0% APR a good idea? 

Depending on the term or length of the loan, a low APR can offer a lower monthly payment or it could be higher than you can afford. If there’s also a cash back offer, use a loan calculator to see which option offers the lowest total cost of ownership.

What cars have 0% right now?

Look at the list above to see which manufacturers offer 0% APR financing for new cars. Check online or with a dealer to find the current deals in your area.

What credit score do you need for 0% APR?

The 0% APR car deals are reserved for well-qualified buyers, which is likely a credit score higher than 740. However, other factors can play a part in the APR you will be offered.