Key takeaways

  • The application process for traditional and no-interest car loans is identical, but you'll need stellar credit to qualify for the latter.
  • These loans are available through manufacturer-owned, captive finance companies and reserved for new or certified pre-owned (CPO models).
  • Dealers tack on other fees to boost their profits on vehicles purchased with 0 percent APR car loans.
  • Despite their drawbacks, no-interest car loans can save you a sizable amount in interest if you negotiate the best deal on a new car.

Many manufacturers and dealerships advertise no-interest car loans. These loans are offered through captive finance companies, which the manufacturer owns, and are used to attract prospective buyers.

As car loan interest rates soared over the past few years, no-interest car loans became a better and better deal. According to a recent Experian study, the average auto loan APR (annual percentage rate) for borrowers with excellent credit scores is 5.07 percent for new cars.

However, it is difficult to qualify for a 0 percent annual percentage rate (APR) without excellent credit. You’ll also have to pay other fees, so don’t expect no-interest financing to be without cost.

If 0 percent auto loan financing makes sense for you, here’s how to apply.

Steps to get a 0% APR car loan

If you’re considering a no-interest car loan, here’s how to move forward and tips to strengthen your approval odds.

1. Make sure your credit is excellent

Lenders want to ensure that you have a near-perfect history of making payments and handling your debt before offering you no-interest financing. An excellent credit score — 781 or higher — will get you the best deal on financing, but you can still qualify for a competitive interest rate if your score is 670 or higher.

A steady source of income is equally important. These loans are often only available for shorter loan terms — up to 48 months — resulting in high payments. The lender will want to know you can comfortably afford your car payments and that there’s little or no chance you’ll default on the loan agreement.

2. Save up for a down payment

You may need a larger down payment. Even if you aren’t required to put money down to qualify for financing, many lenders require a hefty down payment to qualify for a 0 percent interest auto loan.

Lenders also want to see a low debt-to-income (DTI) ratio. A low DTI confirms your income will cover this new debt atop other payments you may be making.

3. Research available 0% APR car deals from manufacturers

Unfortunately, you won’t find no-interest auto loans through traditional banks, credit unions or online lenders. You’ll need to do some legwork to identify auto manufacturers with captive finance companies offering these deals.

If you prefer particular manufacturers, visit their websites and view the page listing current financing offers. Look for deals from at least three manufacturers before moving to the next step. You can also search for deals by model or contact the dealer directly before shopping for vehicles to learn more.

4. Negotiate and apply for the loan

Zero percent financing is just a small portion of the car-buying process. You should still negotiate the car’s price like any other buyer.

If possible, avoid disclosing your interest in a no-interest car loan before negotiating the purchase price. Remember, the dealer wants to maximize their profits on these deals. So, disclosing your intentions of applying for a 0 percent auto loan before agreeing on a price point could hurt your chances of truly getting the best deal on a new ride.

Dealerships may also press you to opt for added features, gap insurance or an extended warranty. These are optional, so be firm if you don’t want them.

Once you’ve negotiated the purchase price of the vehicle with the dealer, the next step is to formally apply for financing.

When to get 0% financing

No-interest financing is a good choice if you plan on financing a new vehicle. Manufacturers typically don’t offer it on base models, so you’ll pay for extra features.

Come to the dealership with a preapproved financing offer from a lender. By doing this, you can calculate how much you’ll save on interest with 0 percent financing.

If you can afford the payment and know you’ll save a few thousand on a car you want to buy, no-interest financing is the way to go. Otherwise, consider it carefully alongside other financing options.

Struggling to decide between a rebate and a 0 percent APR deal? Try Bankrate’s rebate vs. low-interest car payment calculator.

The bottom line

No-interest financing can be a solid way to save on a new car. Plus, the application process is the same as what you’d expect with a traditional loan. If you already have plans to get a pricier model, you can avoid paying a few thousand in interest. And if you don’t mind a higher monthly payment on a shorter loan term, you should be safe from paying more for your car than it is worth.

However, very few people qualify for a car loan with no interest. Even if you do, you might not save as much as you would through bonus cash or a new car rebate. It pays to get financing before you start shopping and calculate the difference between what you’ll spend on interest versus what you’ll save with other options.