It may sound too good to be true, but obtaining a auto loan with a 0% apr (APR) can be done. These financing options are typically only provided in certain circumstances, however, and to borrowers with stellar credit histories.
If you're in the market for a new car, here's ways you can get a 0% APR car loan.
How Does a 0% APR Car Loan Work?
Zero percent APR car loans are auto loans with no interest rate. Which means you can finance a new vehicle purchase, and 100% of the monthly payment will go toward the main balance of the loan—there aren't any interest charges whatsoever.
Car dealers usually offer 0% financing on new cars only, and also you typically need to have a quite strong credit history to qualify for this kind of offer.
These promotions are usually available only from what are called captive financing companies—the finance arms of car manufacturers, for example Ford Motor Credit Co. or Toyota Motor Credit Corp. Manufacturers begin using these deals to incentivize people to purchase brand-new vehicles, which sell at a significantly higher cost than used vehicles. You might receive an advertisement from the local dealer that encourages you to check out a new car and apply.
How to Be eligible for a 0% Financing
It's easy to qualify for an auto loan even if you have bad credit, but having a good credit rating is important if you wish to qualify for low interest rate. So if you feel looking to score a 0% APR car loan, you'll likely need a very good or exceptional FICO® Score☉ , meaning a score of 740 or above.
Before you begin looking for a new vehicle, take some time to check on your credit score to determine what your location is. Also, get your credit report from one or even more from the national credit reporting agencies (Experian, TransUnion and Equifax) to determine what your location is. You can get a free report annually from each agency at AnnualCreditReport.com. Experian also offers a totally free credit report every Thirty days on sign in.
Review your credit report and make sure to file for a dispute using the credit agencies if you discover whatever you believe is inaccurate or even the consequence of fraud. The bureaus investigate these potential discrepancies and can revise or take them off from your credit history if they find that they're inaccurate or fraudulent.
Also, pay attention to any actions you can take to improve your credit:
- Always repay what you owe on time.
- Pay down your credit card balances.
- Avoid closing old credit cards.
- Apply for brand new credit only if you need it.
If you have made late payments and have other negative credit items on your report, it might take some time for the credit history to recover enough to be eligible for a a 0% APR car loan. If you do not need a car immediately and may focus on enhancing your score, you might qualify down the road.
What to Keep in Mind When it comes to 0% Financing
You may wonder if 0% APR car loans have a catch. The reply is yes, there are several potential drawbacks to consider:
- Dealers may try to make up the cost elsewhere. In some instances, dealers could raise the sales price of the automobile or add pricey fees to the contract to make up for the interest savings that you simply gain. Also, you might experience pressure to purchase add-on products, such as a maintenance package or gap insurance. To maximize your savings, do your research on car prices and steer clear of products you don't need.
- Payments can nonetheless be high. If you are purchasing a brand-new car, the payment per month might be high even without interest charges added on. Run the numbers in your budget to find out whether you really can afford the borrowed funds payments and just how they might impact what you can do to work toward other important financial goals.
- They typically come with long repayment terms. To help reduce the cost of the monthly payment, dealers may encourage you to definitely obtain a loan having a long repayment term—some go up to 72 or perhaps 84 months. But locking yourself into such a long expenditure like this makes it difficult to make meaningful progress with other money goals. If you're able to afford it, opt for a shorter repayment term.
Also, keep in mind that you can negotiate the vehicle loan and the terms of the sales contract. Do your research on car prices, fees, add-ons along with other aspects of the car-buying process prior to you heading towards the dealership, so that you can gain some leverage.
Alternatives to 0% Financing
If you don't be eligible for a a 0% APR car loan, you've still got other available choices. Lending institutions, banks and car loan lenders all offer a low interest rate car loans that may fit your budget.
To find the lowest rate of interest that you could be eligible for a, you need to shop around and compare rates and terms from several lenders. As well as the rate of interest, also look at loan repayment terms, prepayment penalties along with other features that could impact your financial situation.
This process can take some time, but it's essential to help you get an auto loan that matches your budget and maximizes your savings.
Monitor Your Credit Even After Getting a Loan
Whether you be eligible for a a 0% APR car loan or opt for an alternate rate, it's important to continue to stay on surface of your credit in the event you need to apply for credit again in the future.
Experian's credit monitoring service not just offers you free access to your FICO® Score run by Experian data but also provides customized alerts on credit report activity, notices when your account balances change, and gives you the chance to increase your credit rating with Experian Boost™† .