Dear Driving for Dollars,
I am planning to buy a car in a few months. I have very good credit, so I am expecting to get a no-interest car loan.
When I see the car commercials advertising “zero percent interest rates,” there is this really fast disclaimer at the end of the commercial that says something like “$16.67 for every $1,000 borrowed.” So I’m wondering, are these car loans really interest-free? Or is this misleading, and there are actually extra charges on these car loans?
— Ezequiel
Dear Ezequiel,
The answer to your question isn’t quite as simple as a “yes” or a “no.” The dollar figure per $1,000 that is cited at the end of any car commercial is the monthly payment per $1,000 for the loan plus interest, if applicable to the loan, for the length of the loan term cited in the commercial. So the $16.67 you heard in the commercial is the monthly cost of financing $1,000 over 60 months with no interest. In this instance, $1,000 divided by 60 equals $16.67, rounded to the penny.
This is absolutely a no-interest car loan. However, this does not mean there is no charge for financing. Many car loans have a loan origination fee as well as a fee for a credit check, and sometimes there are other fees for paperwork associated with the car loan. As a result, there are “extra charges,” as you refer to them, for a no-interest car loan. So in that sense, the loan is not entirely without additional costs.
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