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Close-up of a car loan application with 0% Financing overlaid.

A Closer Look at 0% Auto Financing

Imagine seeing a commercial showing the powerful truck, family-friendly SUV or sleek sedan of your dreams. As you imagine yourself behind the wheel, a voice-over speaks.

“Special 0% financing for well-qualified customers.”

Zero-percent financing is sometimes an option for well-qualified buyers purchasing an eligible vehicle. Before heading to the dealership, however, take a look at what 0% financing is and if it’s an option for you.

What is 0% financing?

Unless you’re paying cash for your vehicle, you’ll need to secure financing. And while you may be familiar with some auto financing terms like APR and simple interest, 0% financing affects the amount of money you might pay over the life of a financing contract.

Zero-percent financing enables you to purchase a car, truck or SUV without paying a cent of interest. Any payments you make are applied to both the interest and the principal on your financing contract. Principal is the amount of money you financed for a vehicle. Interest, on the other hand, is the cost to borrow the money. If you owe any fees on your account, auto finance companies may apply any payments to them first.

What are potential advantages and disadvantages?

As with any step in the car-buying process, it pays to do your research. Here are a few things to consider when it comes to 0% financing.

Advantages

  • Lower your cost of borrowing: Because there are no interest charges to repay, you’ll pay less.
  • Upgrade your purchase: Zero-percent financing can make it possible for you to upgrade the vehicle you want to purchase.
  • Pay off your purchase contract faster: Since the majority of your payment is typically applied to the amount you financed, you can choose to pay off your debt faster, reducing your overall debt obligations.

Disadvantages

  • Eligibility determined (in part) by credit score: Terms and conditions are often stricter on 0% financing offers. If you do not have excellent credit, 0% financing will likely not be an option because of stricter terms and conditions.
  • Short-term contracts may increase payments: While long-term auto financing allows you to make payments upward of eight years, 0% financing terms are much shorter, which could increase your monthly payment.
  • Limited cost-saving incentives: Dealers and vehicle manufacturers may offer fewer financial incentives on 0% financing offers, leading to a loss of potential savings.
  • Typically only available with particular models: Your purchase options may be limited.

Is 0% financing for me?

Advertisements may refer to one who typically qualifies for 0% financing as a “well-qualified buyer.” Each financing company defines what this is according to its specifications, so research the company’s requirements if you’re able to. Beyond your credit score, your annual income, employment history and your repayment history may be considered.

As with any type of financing, read the small print to fully understand your financial obligations.

Whenever you’re ready to buy a new vehicle, it’s always best to know where you stand financially. Get a better understanding of how much it costs to own a vehicle and request a free copy of your credit report. You can also use our loan amount calculator and other auto financing resources to estimate how much vehicle you can afford if you qualify for a 0% financing offer.

Katrina Lewis
By Katrina Lewis, GM Financial

A fan of suspense novels, food trucks and pop culture, Katrina Lewis is passionate about writing to educate and inform, especially when it comes to finances and customer options when leases or contracts are ending. A “boy mom,” Katrina loves playing monster trucks with her son, random day trips and venturing out to various festivals with her family.

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