Nought Percent Finance On New Cars

Zero percent finance on new cars, often called "nought percent" or "0% APR," is a promotional offer where car dealerships and manufacturers provide financing for a new vehicle without charging any interest. This means the buyer only pays back the principal amount borrowed, spread out over the loan term.

The allure of 0% finance is obvious: it can save buyers thousands of dollars in interest payments over the life of the loan. For example, on a $30,000 car financed over five years at 5% APR, you'd pay roughly $3,900 in interest. With 0% finance, that $3,900 stays in your pocket.

However, securing 0% finance is rarely as simple as walking into a dealership. These offers are typically reserved for buyers with excellent credit scores. Dealerships and manufacturers want to minimize risk, and offering 0% interest is a gamble they're only willing to take with the most creditworthy customers. Expect a credit score in the "super-prime" range (generally 750 or higher) to be required. Be prepared to provide extensive documentation proving your income and financial stability.

Furthermore, 0% finance deals often come with certain restrictions. They may be limited to specific car models, trim levels, or loan terms. You might only be able to finance for a shorter duration, like 36 or 48 months, increasing your monthly payments. Carefully compare these payments to those of a loan with a longer term but with interest, to ensure affordability.

Another common requirement is a substantial down payment. The dealership might require a significant portion of the vehicle's price upfront to offset the lack of interest revenue. This can be a hurdle for buyers who are short on cash. It's crucial to weigh the benefits of 0% finance against the financial strain of a large down payment.

Dealerships often use 0% finance as a promotional tool, but it's not always the best deal. It’s imperative to negotiate the price of the car before mentioning your interest in 0% financing. Some dealers might inflate the car's price to compensate for the lack of interest income, essentially burying the interest cost within the vehicle's MSRP. Always compare the "out the door" price with 0% finance to the price you could negotiate if you were paying cash or financing through a different lender.

Finally, consider whether you'd be better off taking a manufacturer's rebate and financing the car through your bank or credit union. Sometimes, a sizable rebate and a slightly higher interest rate can actually result in lower overall costs. Do the math and compare all available options before committing to a 0% finance offer.