Are 0% APR Deals For 84 Months A Bad Idea?

By

Senior Pricing Analyst

As CarsDirect’s resident pricing analyst, Alex offers must-know analysis of pricing & incentives to those looking to buy or lease a car. His consumer-oriented coverage of the latest trends and breaking news has been featured in publications such as Car and Driver, Motor Trend, Automobile Magazine and Autoblog.

Follow On: Twitter

, Senior Pricing Analyst - April 14, 2020

With over a half dozen auto brands now offering 0% APR for 84 months in response to COVID-19, new car buyers may be wondering if a 7-year financing deal is a bad idea or not. Based on our analysis, the answer may vary based on factors like what your choices and priorities are for owning your next car or truck.

For example, Detroit's Big Three are all offering interest-free loans for 84 months but each offer has its own advantages and disadvantages. Ford's sale excludes its 2020 lineup, while both GM's offer and FCA's deal allow you to enjoy the rock-bottom rate on many 2019s but only a handful of 2020 vehicles. But that's not all.

In most cases, these are treated as standalone offers that you can't combine with cashback incentives. For example, the 2020 Chevy Silverado 1500 offers a choice between 0% APR and a $6,000 rebate. With a $50,000 truck, your cost with 0% financing would be $50,000 at $595/month before taxes & fees.

With a 7-year loan at 5%, it would cost $52,239 at $622/month. With a 5-year loan at 5%, it would come out to $49,820 at $830/month. Here, opting for 0% financing would result in a lower payment. While a shorter loan has a lower total cost, the payment ends up being $235/month more expensive.

If your goal is to make a vehicle fit within your monthly budget, 84-month financing could be a compelling option. But there are risks. For example, a vehicle that looks over $200/month more affordable may make it tempting to buy a truck that's a lot more expensive and increase the risk of encountering negative equity.

Since vehicles lose value over time, some consumers may find that they may owe more than the vehicle is worth. If your circumstances change, negative equity can even impact the cost of your next purchase. Many opt to simply roll money owed from a previous loan into the cost of a new vehicle.

Having said all that, there is a lot of potential upside for shoppers who understand the risks. For example, there are a number of vehicles with incentives that heavily favor financing. In the case of the 2020 Hyundai Elantra, currently the cheapest car in America you can lease, there's a significant advantage.

With a $20,000 Elantra SE, Hyundai is offering a choice between $1,000 cash or 0% APR for 84 months. With the financing, the cost would be $20,000 at $238/month. With the rebate, a 7-year loan at 5% would cost $2,558 in interest at $269/month. With a 5-year loan, it would be $1,513 in interest at $359/month.

Here, opting for 0% APR would result in both a lower cost and payment compared to a shorter loan. As a result, we consider the Elantra one of the best 0% APR deals in April. However, since the variables may vary from vehicle to vehicle, shoppers will need to ensure they do their homework before making a decision.

It's also important to note that many of these offers require top-tier credit in order to qualify. If you don't, you'll almost certainly encounter higher rates. In that case, buyers with bad credit or a history involving bankruptcy may find it wise to find a new car dealer that specializes in helping those with poor credit.

See All Top 0% Financing Deals »

, Senior Pricing Analyst

As CarsDirect’s resident pricing analyst, Alex offers must-know analysis of pricing & incentives to those looking to buy or lease a car. His consumer-oriented coverage of the latest trends and breaking news has been featured in publications such as Car and Driver, Motor Trend, Automobile Magazine and Autoblog.

Follow On: Twitter

Privacy Policy|Do Not Sell My Personal Information|Terms of Use|Cookie Policy|Disclaimer|
COPYRIGHT 1999-2020 MH Sub I, LLC dba CarsDirect.com