What Are 0% APR Auto Loans?

If you’re in the market for a new car, you may hear about 0% APR car loans. With 0% APR auto loans, you won’t owe any interest on your loan amount. You’re basically able to take a car off the lot, with the agreement you’ll pay back whatever you didn’t pay in full at the time of purchase, interest-free. Certain carmakers offer these types of loans on selected new models. You might also find 0% APR financing options from dealerships trying to get rid of inventory or sell more of a certain model.

In terms of interest savings, 0% APR loans are considered some of the best car loans. But while they may have the lowest car loan rates, they can also limit your options compared to some of the other best auto loans you can get from car loan companies.

Lending Partner
Min. Loan
Fixed APR
Eligible Degrees
  • Auto Credit Express
    Min. Loan
    N/A
    Fixed APR
    N/A
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • CarsDirect
    Min. Loan
    N/A
    Fixed APR
    3.00% – 12.90%
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • LightStream
    Min. Loan
    $5,000
    Fixed APR
    2.49% – 9.49% w/AutoPay
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • MyAutoloan
    Min. Loan
    $7,500
    Fixed APR
    3.49%–21.08%
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • PenFed
    Min. Loan
    $500
    Fixed APR
    Starting at 1.39%
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • Auto Credit Express
    Min. Loan
    N/A
    Fixed APR
    N/A
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • CarsDirect
    Min. Loan
    N/A
    Fixed APR
    3.00% – 12.90%
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • LightStream
    Min. Loan
    $5,000
    Fixed APR
    2.49% – 9.49% w/AutoPay
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • MyAutoloan
    Min. Loan
    $7,500
    Fixed APR
    3.49%–21.08%
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • Penfed
    Min. Loan
    $500
    Fixed APR
    Starting at 1.99%
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • LightStream
    Min. Loan
    $5,000
    Fixed APR
    2.49% – 9.49% w/AutoPay
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • LightStream
    Min. Loan
    N/A
    Fixed APR
    2.49% – 9.49% APR w/AutoPay
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • MyAutoloan
    Min. Loan
    $7,500
    Fixed APR
    3.49%–21.08%
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
  • PenFed
    Min. Loan
    N/A
    Fixed APR
    N/A
    Eligible Degrees
    N/A
    NEXT
    on lender’s secure website
In this article

    How do 0% APR auto loans work?

    You might be able to find one of the best 0% APR auto loan options directly from a carmaker looking to move inventory. Car dealers may also offer special financing terms to create the best car loan with 0% APR for you. The car dealer may cover the interest you’d pay when you qualify for a low APR loan to entice you to buy a car.

    Typically, 0% APR loans are only offered to those with excellent credit scores. However, if you have a lower credit score than excellent, you still may be eligible for some 0% APR loans. A carmaker or dealer may offer a 0% APR loan because they’re making enough money off the car sale to justify the terms.

    Edmunds states 0% APR loan options tend to pop up more in summer to increase sales for outgoing model years.

    How can I qualify for a 0% APR loan?

    Edmunds reports 0% APR loans are typically reserved for those with “Tier 1” credit, not a specific minimum score. A Tier 1 distinction usually indicates excellent credit, but don’t be deterred if your credit score is lower. Tier 1 may mean different forms of credit to different carmakers and dealers. It may also fluctuate depending on what inventory needs to be moved.

    If you don’t qualify for what Tier 1 means today at the carmaker or dealer of your choice, you may be interested in the best bad credit car loans. Or, you may able to improve your credit to get a 0% APR auto loan.

    One way to improve your credit score is to make sure you’re paying all your bills in full, on time. Set up automatic payments so you don’t have to worry about missing them.

    You might also want to put a credit freeze on yourself. Only use your debit card for purchases you can afford now. Make paying off your credit card debt your priority. Avoid opening or closing new credit card accounts. You want to keep your credit history intact while also avoiding hard inquiries into your credit report.

    Even if you don’t qualify for a 0% APR auto loan now, you may qualify for a low APR auto loan. In some cases, the dealer may offer to pay your interest on that loan if you buy the car, so you’re still getting 0% APR refinancing.

    Finding a 0% APR auto loan

    According to Edmunds, carmakers like Kia, Subaru and Ford offer these types of loans on selected models. You might find them from dealerships trying to get rid of inventory or sell more of a certain model.

    Also, some dealerships may promote 0% APR loans because they’re getting an incentive from the carmaker. Check out dealership or carmaker websites, or call dealers to compare 0% APR auto loan offerings.

    Even if you’re able to purchase a car in all-cash today, you still may be interested in a 0% APR loan. The benefit is that you’ll be able to keep more of your money on you now, to invest or spend how you need to.

    What to know about 0% APR financing

    In some cases, a 0% APR loan or financing may not make sense for you. One situation is where you’re offered a cash bonus that’s a higher amount than what you’d save with a 0% APR loan. In that case, it may be better to take the cash now and pay interest on the loan over time to save money long-term. You could also look for a refinance auto loan after agreeing to a low-interest loan and taking a rebate to lower your rate and save even more.

    It also helps to get pre-approved for a car loan with your bank or credit union before you go car shopping so you have something to compare loan offers to. Especially if you’re presented with a cash offer, a low-interest loan you’ve been pre-approved for can help you make a better financial decision when considering a 0% APR loan.

    Carefully look at the terms of a 0% APR loan. When the loan is for five years or more, you run the risk of being stuck paying for a car you may not want in the future, or for a car whose value has greatly depreciated. You also want to be aware that some 0% APR loan terms will require you to purchase add-ons, like gap insurance or an extended warranty.

    Some dealers may drive up the car cost to make up for the 0% APR financing. You’ll want to compare cars and costs among dealerships to make sure you’re not paying extra.

    Nicki Escudero

    Contributing Writer

    Nicki Escudero is a freelance writer and journalist with more than 18 years of experience in the publishing industry, writing for international publications such as USA Today, Entrepreneur, Marketing Land, American Art Collector magazine and the Arizona Republic. She is passionate about helping readers discover helpful tips that lead to happier, healthier lives. A former Australian expat, Nicki has a passion for world travel and loves to learn about new cultures.

    Reviewed by

    • Courtney Mihocik
      Courtney Mihocik

      Courtney Mihocik is an editor at The Simple Dollar who specializes in insurance, personal finance, and loans. Previously, she wrote and edited for Interest.com, PersonalLoans.org, Ballantyne Magazine, Thread Magazine, The Post, ACRN, The New Political, Columbus Alive and the Institute for International Journalism.