What Are 0% Auto Loans?

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January 27, 2012

Zero percent financing or "0% auto loans" are options on vehicle financing where the annual percentage rate, or APR, is reduced to zero. These loans, therefore, do not accrue interest, at least over their original terms.

Lenders who represent those who want to move cars often offer zero percent financing, but usually at the expense of other options. 0% financing can result in a shorter loan term, and bigger payments. 0% financing can be a legitimate way to pay off a vehicle without snowballing debt in the form of interest, but these financing options can come with strict terms and conditions, as well as hidden charges.

Another common point with 0% financing is that it can be offered as an alternative to taking a manufacturer's rebate: this gives the potential buyer the choice between taking free money and accepting an APR greater than zero, or staying with interest-free payments on the total amount.

Car shoppers who will need to finance a vehicle purchase should look at 0% financing deals on a case-by-case basis and evaluate them according to the borrower's household income and other varying factors, such as whether the financing could be lowered by a bigger down payment or other up-front payment situation.

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