When you're getting ready to purchase a new vehicle, the idea of 0 percent APR might sound pretty appealing. Dealerships often claim that these deals are the best you can get, and they may not be entirely wrong. But what does 0 percent APR mean? Ultimately, if you get a loan with 0 percent APR, you'll end up paying the same amount as someone who paid cash. This is because, Lending Tree says, 100 percent of your payments go to the principal since there is no interest.
What You Should Know about 0 Percent APR
Loans have an annual percentage rate, or APR, attached to them. Knowing some car-buying terms when it comes time to buy a new or used vehicle is always a good idea. In the case of a 0 percent APR loan, you'll pay nothing in interest. This type of loan is possible because it's not the bank that's giving out these loans, they're typically going to be financed by the automaker. Automakers can make the money they need off of the car sale, putting them in a better position to offer 0 percent APR loans.
Some of the reasons that automakers like to offer 0 percent APR loans are:
- To boost sales and reduce inventory of older vehicles, which means more space in the showroom for the newest models.
- Attracting potential customers to dealerships. The more traffic a dealership has, the more vehicles automakers are likely to sell.
Automakers do not hide the fact that they are running 0 percent APR deals. In fact, they're often promoting these deals. However, you may have to do some research to find the deal that suits your needs perfectly. If you have a specific car, truck, or SUV in mind, just put the information about it into your web browser to quickly see if a 0 percent APR deal is available, says Autotrader.
On the other hand, if you aren't sure of the vehicle you want, you can do a general search for vehicles that are being offered with 0 percent APR. Just be sure to double-check with the automaker's website, as this information isn't always accurate or up to date. Typically, you're more likely to find 0 percent APR offered with newer vehicles, although, you may save more money by buying a used vehicle without 0 percent APR. It's up to you to do the research and find a vehicle and a price that fits your budget and lifestyle.
Why Dealerships Advertise 0 Percent APR
There are many reasons that automakers and dealerships advertise 0 percent APR rates to customers. The main reason is that they want to sell cars, and this attractive offer often gets people in the door. Unfortunately, once you get in the door:
- You may realize that you don't qualify for 0 percent APR.
- The salesman may try to sell you something that doesn't fall under the 0 percent APR deal.
Additionally, dealerships will sometimes tack on fees or other charges to help make up for the 0 percent APR financing they're offering. They might also raise the price of the vehicle. However, you can ask the lender for a list of the fees being charged over the sale price so you're well-informed. Lending Tree warns that sometimes, with 0 percent APR, the fine print will put a limit on the amount the loan can be. If you go over the limit on your purchase, you will be charged interest on the remainder of the loan.
Occasionally, you may be given a choice between:
- Bonus cash
- A low-interest rate
- 0 percent APR
You'll want to do the math to figure out which option is right for you. When you have to decide whether or not to take the bonus cash, you need to ensure that it will offset any finance charges that will be incurred for the life of the loan.
If you've been offered either a $1000 cash bonus or 0 percent APR on your $30,000 loan with a 60-month term, you'll need to do the math to figure out which option will save you more. Let's say you would normally be charged 2.9 percent interest on the loan. By taking the 0 percent APR, you'll end up saving $1188, which is more than the bonus cash amount. This is why running the numbers is a good idea.
Credit Karma recommends that you include all of the relevant costs associated with buying a vehicle, such as sales tax based on rebates, before deciding which option is right for you.
Qualifying for 0 Percent APR
Perhaps you've noticed an automaker's appealing 0 percent interest advertisem*nt, but have you listened to or read the fine print that goes along with that advertisem*nt? The one that says "on approved credit?" Many people will pick out a car they love, test drive it, and begin negotiations before they realize that they don't qualify for the advertised 0 percent APR rate they thought they were going to get. This is why getting pre-approved before you choose a car or visit a dealership is always a good idea. This ensures you know your budget and you can stick to it.
There are some requirements when it comes to qualifying for 0 percent APR. The main thing is that you need to have a good credit score. This means a long credit history and one that shows you have a good history of paying your bills. However, Edmunds explains that there is no magic number when it comes to credit score, and what qualifies will vary from dealership to dealership. To qualify for 0 percent APR, you might only need a score of around 700, but some dealerships have been known to require credit scores of up to 750.
Financing your vehicle with 0 percent APR might sound too good to be true, but in some cases, this can be a great way to buy a brand-new vehicle. Do your research on the terms and conditions of the 0 percent APR deal before you head to the dealership, to make sure you'll qualify and meet all the requirements.
Sources:
https://www.lendingtree.com/auto/0-apr-car-deals/
https://www.creditkarma.com/auto/i/credit-karma-guide-0-percent-apr-auto-loans/
https://www.edmunds.com/car-loan/what-you-need-to-know-about-zero-percent-car-loans.html
https://www.autotrader.com/car-tips/buying-car-whats-catch-0-percent-loans-222702
