Are 0% Car Loans a Scam?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

, - September 7, 2018

Zero percent car financing isn’t a scam, but qualifying for it can be difficult. You need to have excellent credit in order to qualify for a zero percent APR car loan. But because dealerships don’t always emphasize this requirement in advertisements, it’s easy to feel cheated if you don’t qualify.

What’s 0% Financing?

Car loan interest is what lenders charge you for the use of their money to finance a vehicle. Zero percent financing is when you aren’t charged any interest on an auto loan. When you qualify for zero percent financing, you only pay the lender back the money you borrow without any interest charges.

Zero percent financing is attractive to car buyers because they don’t have to pay interest. They simply borrow money from the lender without paying a fee. Having zero percent APR means you pay the same amount as a cash buyer for a vehicle, but you can spread the cost out over the loan term.

Is 0% Financing a Good Deal?

Zero percent financing sounds great, but what’s the catch? Like most too-good-to-be-true offers, there are pros and cons associated with a zero APR deal. While each zero APR offer comes with different terms, you can typically expect to consider these issues:

  • Zero APR versus a cash rebate – Zero APR loans are typically offered on new cars by captive finance companies – the lending arms of automakers. Although the finance company won’t make a profit with a zero APR loan, the manufacturer profits from the sale of the vehicle. In some cases, borrowers are given a choice between a zero APR loan or a cash rebate. In these instances, you’ll need to decide which is better for you.
  • Loan term – Zero percent new car loans come with a maximum term. If the term is 48 months or less, the payment may be unaffordable (unless you have a large down payment), so be sure to read the fine print before visiting the dealer.

How to Get 0% Financing

Finding a zero percent financing deal can be a challenge, but when you spot one, you might want to head to your local dealer ASAP. Before you do this, make sure you do your research ahead of time. You need to know the specifics of the loan including any alternative offers (such as rebates) and the maximum loan term allowed. Not all zero percent APR deals are the same, and some may only apply to certain vehicles, leaving you with minimal buying choices.

You should also look at different lenders and talk to them about their APR offers. It’s always good to have options, and their interest rates along with the manufacturer’s rebate may save you more money than a zero percent APR. Make sure, however, that you rate shop and make a decision within 14 to 45 days to avoid multiple hard inquiries on your credit reports, which can hurt your credit score.

The Bottom Line

Zero percent APR car loans aren’t a scam – it’s just tough to get approved for one. Because most buyers won’t qualify for zero percent financing, it’s important you’re prepared to pay interest on an auto loan. If you’re ready to find financing, but worry your credit is in the way and will affect your interest, let CarsDirect help.

We work with a nationwide network of dealers that have the lending resources to get you the financing you need, even if you’re dealing with poor credit. Just fill out our simple auto loan request form to get started today.


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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

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