Applying For 0% Auto Loans

March 18, 2013
0% auto loan symbol

0% APR loans are quite simply one of the best deals you can get when purchasing a car. Car loan interest rates are one way that large auto companies make a substantial profit off of consumers when selling new vehicles. Toyota Financial Services, GMAC, Ford Credit and Mercedes-Benz Financial are the lending entities of some of the largest automakers in the world. These financial wings were created because automakers recognized that most customers could not afford to purchase a new vehicle with one up-front cash payment.

Advantages Of 0% Auto Loans

Often times, automakers offer lower loan rates than a bank would, yet they create more profit to the automakers than letting a third party handle the financing of their sales. Ideally, it works out better for both the automakers and the consumers. There are a couple of advantages for consumers in particular.

  • 0% Auto Loans is Like Getting Free Money: Because most major automakers have a financial company set up to handle loans for purchases made at their dealerships, they will frequently offer low loan rates to convince more consumers to purchase vehicles. Sometimes, these rates even go as low as 0% APR. Getting a no interest auto loan is essentially like getting free money. Not only do you avoid paying interest, you actually end up paying less than the agreed upon price of the vehicle when you take into account the time value of money. Look at it this way: if you were to purchase a car with cash, you would avoid interest, but the money would be gone. However, with a zero percent loan, you can avoid interest while investing the excess money and getting a return on it before paying off your automobile loan. Essentially, a 0% loan offers the best aspects of buying a car with cash and buying a car with a loan.
  • 0% Auto Loans or Cash Rebate: The attractiveness of a no interest loan is fairly obvious, so if that choice is available why should you consider any other option? At times, the automakers will offer a sizeable cash rebate as an alternative in place of the 0% loan. In some cases, the final price with the rebate may be a better deal in terms of the time value of money, depending on a variety of factors. This includes the price of the vehicle, the length of the loan, and the amount of the down payment. In most cases the wise decision is to take the 0% loan if it is there. However, you may want to look at the net present value of the total payments for each option to make sure. You can ask the dealership to calculate these figures and their financial staff should have no problem presenting them to you.
  • Find out if you qualify for an auto loan >>

Disadvantages Of 0% Auto Loans

Are there any negatives to a no interest loan? In regards to the loan itself, there really are no negatives. However, there are distinct disadvantages to this type of loan, including the credit requirements, length of the loan and purchase price of the car.

Credit Requirements In most cases, 0% auto loans are only available for "qualified" buyers. This means individuals who have a credit score of at least 700 or higher. In fact, in some cases, the credit requirements may be even more stringent and require a credit score of 720.

Unfortunately, the majority of individuals purchasing a new car do not have credit scores this high. As a result, they will not qualify for the 0% auto loans and instead will only qualify for loans charging interest. However, the upside to this is usually 0% auto loans do not qualify for loan rebates either, so getting a car loan with interest places that advantage back with the buyer.

Loan Duration
With some regularity, 0% auto loans are very short car loans when compared to car loans with interest. The average length of a 0% car loan is 24 to 36 months. Compare this with other loans that often have a length of 48 to 72 months. As a result of the short duration of 0% auto loans, the monthly payment is extremely high, putting it out of reach for most borrowers.

Auto Purchase Price
Probably the largest disadvantage of 0% auto loans is the ultimate car purchase price. Very often, dealers will push the price all the way to the upper limits of the MSRP, (or Manufactured Suggested Retail Price,) which raises the monthly payment even higher. Far too often, borrowers believe they are getting a good deal since they are not being charged interest on their car loan. Unfortunately, they do not realize that they are paying top dollar for their new car, despite not paying any interest on the loan. Even more problematic is that many dealerships do not encourage negotiation on the purchase price with this type of loan.

Model Restrictions
Very often, while car manufacturers may be advertising 0% auto loans, the loan is only available on a limited number of models. As a result, the average car buyer may find themselves locked out entirely of the loan offer by the simple fact that the car they want to purchase does not qualify for the loan program. Additionally, many manufacturers limit 0% auto loans to the higher end luxury car models.

While initially a 0% car loan may appear attractive, digging a little into the details may turn out to be a distinct turnoff for most car buyers. Instead of this type of loan, car buyers are better served by taking advantage of the rebates that are often offered as an option instead of a 0% car loan and finding their own financing. In many cases, it is possible to research and find lenders online who can not only offer better interest rates, but overall provide better loan terms than a car dealership. In this way, it is possible to lower the purchase price of the car with the rebate and still get a better loan deal.

One does not need to necessarily accept financing through the car dealership. Today it is possible to decide what car you want and arrange for instant auto financing online, often at even better loan rates and terms than dealerships are able to offer. When combined with a rebate program, buyers can actually place themselves in a better position financially than if they had been able to meet the requirements of a 0% auto loan.

Many car buyers discover that the model they want to purchase is excluded from the loan program. As an alternative, car buyers might consider using the rebates offered and securing auto loan financing from an online lender instead.

Researching and Comparing Requirements for 0% Auto Loans

Researching 0% auto loans before jumping into the loan application process is crucial for success. Far too many people leap into the 0% interest loan because of the allure of the number. They feel that a no interest loan is the best way to save money on a car loan. For many, this will fail to be the case. Researching the specific auto loans will help you to find out which loans will help you financially, and which ones could actually hurt you.

Money Down
Research the required money down for any 0% auto loan. This will help you to understand exactly what is required of you from the company. Some lenders will require that you put up to 25% of the cost down for the loan. To use a simple example, if the purchase price is $30,000, then the down payment requirement would be $7,500. For some, this will be too difficult to make the 0% interest worth it.

Keep in mind that very often, auto manufacturers limit the models for which 0% auto loans qualify - usually to the higher end luxury models of their line. As a result, the down payment could be substantial.

Length of Payment
Some companies require an incredibly high down payment for the loan. Others will retain the usual down payment, but will require a shorter payment timeline. Some will require both. Understand the payment schedules and expectations of all companies to understand what you will be paying in the long run with each loan. Compare each company to find the best payment schedule for your financial lifestyle.

At the end of the day, the lender needs to make money. They will not be making money on interest, as the 0% auto loans have no interest. Some companies will raise the price of the car to the MSRP to make money. Others may have specific loan fees for having the 0% auto loan. Find the small intricacies of the specific lender's loan and compare this to others to find the least costly loan.

See what kind of interest rates you can get >>

Compare Their Penalties
Each company will have various penalties for missed payments. Some see this as an opportunity to make money from the customer. Understand the penalties for each loan and compare them to one another. You aren't planning on paying any payments late. Knowing what will happen if you do is still important.

Use Reviews
Do not be afraid to use reviews online. These reviews can make it easy for you to find 0% auto loans that meet your requirements. They will give you a view of the lender from the perspective of the borrower; the only way to truly understand how the lender's loan process works.

Applying for 0% Auto Loans Online

Applying for 0% auto loans can be a tedious process. Many apply for these loans in multiple locations in an attempt to be approved. Not everyone is approved for these loans however, and the fact that they are difficult to obtain makes it even more stressful for the individual attempting to find a 0% interest loan. Applying for 0% auto loans online can be a simple way to make your search easier.

The Internet can be an incredible resource for anyone who is looking for a loan. Using the Internet to apply for a 0% auto loan can be the simplest way to find the low interest rate that you are looking for. Following a few tips and steps can help you to get the most out of your online auto loan search. It will also help you to understand more about the overall process, and what you can expect by applying for these loans.

Find Reputable Lenders
Finding reputable lenders in person is a simple task. Finding reputable lenders online for 0% auto loans can be more difficult. You will need to do extensive research on lenders before you begin the process. Use the Internet to your advantage; read reviews and articles about specific lenders to figure out which lenders are safe and reputable.

CarsDirect helps more credit-challenged customers find car loans than any other website in the country. The company works with a network of dealers who specialize in car loan financing. The dealer has access to a number of financial institutions and will shop around to find you the best deal. Just fill out a simple application and you will be on your way to receiving a car loan.

Choose the Car
Before you apply for the loan, choose the car that you want to purchase. Some people will attempt to find the car loan before they find the car. They want to know how much money they have for the car before they choose a model. A 0% auto loan practically requires that you know how much the car is worth before you apply for the loan. This will help to determine the money down and the down payment for the vehicle.

Research the Numbers before You Apply
You need to research all of the possible numbers before applying for this loan. You need to understand how much money you can put down on the car, and how much money you can pay per month. These loans often feature high monthly payments and high down payments. You need to know if you can afford this specific type of loan before you apply, as it acts differently than regular auto loans.

Choose a Few Lenders
At this point, you simply need to choose a few lenders before finally applying for the loan. It is important to remember that the more that you apply and are denied for loans, the lower your credit score gets. Only apply in a few places to ensure that you get the loan that you want.

The art of applying for 0% auto loans online revolves around being prepared. You need to understand exactly what you need from the auto loan company. You also need to understand exactly what the loan means and requires. Too many people jump into 0% interest loans without understanding the repercussions. They fail to realize how much money should be put down, and how much they must pay a month. Understanding all that you can will not only help you to be prepared, but will help you to find the right 0% auto loan for your finances.

Related Questions and Answers

When Buying a New Car, How Does Cash Back Work?

New car cash back works like an addition to the down payment you are making on a car loan. New car cash back is often referred to as "customer cash" or "rebates", implying that the discount is coming from the dealership. In fact, new car cash back comes from the manufacturer, and varies only by geographic region, not dealership. New car cash back is subtracted from the post-tax purchase price of the vehicle. In this sense, you are paying tax on the amount of the new car cash back, as your rebate amount is taxed before it is factored into the transaction.

Is 0% APR the Best of New Car Incentives?

In most cases, 0% APR is among the best new car incentives. Although some makes and models can have excellent, large cash rebates, customers looking to take a long term auto loan are likely to benefit most from a 0% APR offer. Consider the length of the 0% APR offer before agreeing to take the rate over a rebate. For example, some models may have 0% APR available for only 24 or 36 months. In which case, using a rebate to offset the total amount financed could be the best choice among the best new car incentives. Use a simple interest loan calculator to determine the best new car incentives in your case.

What are Some Car Loan Requirements When Applying Online?

Car loan requirements for online applications are, believe it or not, the same as if you went to the bank and applied in person. It's just that you are sending your personal information out there on servers the owners of which you don't know. The information you must provide not only includes your name, address, phone, bank account numbers, income information, Social Security information, as well as, possibly a list of loans and credit cards and numbers that you may have outstanding. This is the same information you supply in the traditional pen-and-paper loan application you fill out when seeking a new or used car.

Can You Get Cars With Zero Percent Financing and a Rebate?

One way that dealerships and auto makers entice you into buying is by offering cars with zero percent financing. This is a loan where no interest is charged during the life of the loan. What you end up paying over the life of the loan is very little more than what you would have paid up front if you could have afforded to pay cash for the car in question. Rebates are also a way that dealerships and car makers entice the car buying public. Rarely do they combine these two types of buyer incentive. However, careful shoppers can and do occasionally get both. Car buyers that do their research before shopping will be more likely to obtain both zero percent financing and some sort of rebate when buying.

Is There a Formula to Determine Your Car Loan Down Payment for 0% Financing?

If you're buying a vehicle, you may be wondering what type of car loan down payment will help you qualify for zero percent financing. Zero percent loans are normally reserved for those with the best credit ratings. Some lenders will offer zero percent loans for those with less than perfect credit if you can come up with a down payment. Typically, lenders are going to look for as much of a down payment as possible. If you can come up with a minimum of 20 percent down, you will greatly increase your chances of being given a zero percent loan.

What are Your 0% Car Financing Options/Alternatives?

There are many different car financing options open to the new and used car buyer. You can get a loan from an outside lender, your bank or credit union, the dealership or from the car maker's credit company. All of these will at times offer zero percent financing options, usually to those people with spotless credit. Car makers and dealerships will often offer zero percent options on car models that are slow movers or that they have a surplus of. Usually, it's credit companies such as GMAC and Toyota Motor Credit that offer these types of rates.

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