Credit Score Needed For Zero Percent Auto Financing

Check Your Credit Score Before You Go To The Dealership

What is a Credit Score? Kal Penn Explains | Mashable

The first step to securing an ideal carloan is to check your credit report and score. You can do so right now, and for free, via .

Dealerships will often advertise very good interest rates on new cars: 2.9%, 1.9%, sometimes even 0%. What they save for the fine print is that these rates are only available to car buyers with the best credit meaning those with a score of 750 or better.

Dealers and banks will still give youa carloan if you have a poor credit score. Thats because they know theyll make tons of interest off of you, and if you dont pay, they can just repossess it while youre inside Trader Joes.

Buyers with credit scores in the low 700s can still get a decent interest rate, but they may not qualify for the best promotions. And rates rise quickly for scores below 700. If youre a borrower with a below-average credit score , you may be presented with carloan rates of 10% or more.

Read more: Understanding the Credit Score Requirements for Car Loans

What Does It Take To Qualify For A Zero

It depends on your credit score and other factors


With the car business still recovering from slumping sales caused by the COVID-19 pandemic, automakers have been leveraging generous sales incentives and pushing online and contact-free sales to help move the metal. Several automakers are offering financing on many of their models with 0.0% interest this month for as long as six or seven years. Taking advantage of a carmakers low-rate or interest-free financing is almost always a bigger money-saver than is taking a cash-back rebate unless its particularly huge.

With the average price of a new vehicle at around $38,000, the total cost to finance it for five years with $5,000 down and interest at 5.0% would be $4,365. At 0.0% its, well, zero. And as one could imagine, the savings are even greater with higher-cost luxury vehicles.

But there is a catch to automakers cut-rate loan promotions, and it refers to the familiar catchphrase, for well-qualified buyers only. That means youll need to have a prime credit score, among other favorable factors to qualify. Lenders consider applicants having lower credit scores to be riskier than those having top ratings, which means theyll typically be charged higher financing rates.

Having late or missed payments, debt collections, bankruptcies, exceeded credit limits and/or outstanding tax liens will send a FICO score plummeting.

Bring Documents Showing Financial Stability

If your credit score is low, potential lenders are less likely to see you as a risk if they can see you have stability in other areas of your financial life. Bringing documentation like your most recent pay stubs and proof of address to show lenders how long you have lived at your current address and worked at your employer could help you seem more reliable.

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Your Car Loan Can Help You Build Better Credit

Once you’ve secured your car loan, it will help you build credit in two important ways: payment history and credit mix.

Payment history is your track record of paying bills on time. It accounts for more of your credit score than any other single factor. Traditional lenders report your payments to the three major credit bureaus, which provide the data to calculate your credit scores.

Banks And Credit Unions

Most banks who offer auto loans provide similar rates as low as 3% to the most qualified customers. However, there is much variance amongst banks in the highest allowed APR, with top rates ranging from as low as 6% to as high as 25%. Banks who provide higher rate loans will generally accept applicants with worse credit, while more risk averse lenders wont offer loans to applicants with scores below the mid-600s.

The typical large bank has specific eligibility requirements for loans, including a mileage and age maximum for cars, and a dollar minimum for loans.

Generally, credit unions extend loans at lower interest rates than banks, have more flexible payment schedules, and require lower loan minimums . However, credit unions tend to offer loans exclusively to their membership, which is often restricted to certain locations, professions, or social associations.

Financial Institution

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Is There A Catch To 0% Apr Car Deals

There isnt necessarily a catch to 0% APR financing offers. These deals are real, and you wont pay any interest on your car loan. However, that doesnt mean theyre the best deal for you. Even without interest payments, you could still pay more overall.

Thats because taking a 0% financing deal will usually make you ineligible for manufacturer rebates offered on new cars. You may have heard these incentives referred to as bonus cash or cash back in commercials.

A rebate may be more than what youd pay in interest on a typical loan, especially since new car loans generally have the lowest interest rates. Reading all offer disclosures and using an auto loan calculator can help you determine whether youd save more money with a rebate or 0% financing.

What Factors Affect Auto Loan Rates

Auto lenders set interest rates based in part on the likelihood of repayment. The riskier the loan is for the lender, the higher the interest rate it is likely to charge. Several factors indicate risk to lenders and can affect the interest rate you get on a loan.

Here are the most critical factors used to determine your rates:

  • :Your credit score is the factor that carries the most weight. The lower your score is, the higher your interest rate is likely to be.
  • :Your credit score is part of your credit history, but it isnt all of it. Lenders look at a detailed credit report that includes information about how much of your available credit youre using and whether youve missed monthly payments.
  • Loan term:Car loans generally have terms ranging from 12 to 84 months. Longer terms typically translate to lower monthly payments, but they also tend to come with higher interest rates.
  • :The average market rate is a significant factor in the rates you get. Lenders adjust their rates based on what they pay to borrow money, so youll see higher rates if the average interest rate goes up.
  • Loan-to-value ratio:The LTV ratio expresses how much of a cars value is borrowed. For example, if you want to borrow $20,000 for a car thats worth $40,000, thats an LTV ratio of 50%. The lower the LTV ratio is, the lower your interest rate is likely to be.

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How Credit Scores Affect The Cost Of A Car Loan

Just because you can get an auto loan with a low credit score doesn’t mean that it’s always a good financial move to do so. Whether or not it’s a good decision depends on your unique situation.

For starters, lenders tend to offer significantly higher interest rates to subprime and deep-subprime borrowers. This can make a car far more expensive than its sticker price might lead you to believe. Here’s a look at the national average auto loan APRs as of Dec. 11, 2018:

FICO® Score Range
  • If you have a FICO® Score of 720 or higher: You will likely pay a $560 monthly payment. That’s $3,574 in interest over a 60-month car loan.
  • If you have a 675 FICO® Score: Your payment would likely be closer to $610. That’s $6,611 in interest alone over the life of the loan — you’d pay $3,000 more in interest than a top-tier borrower.
  • If your FICO® Score is 600: You’d probably pay $728 per month. That’s $13,673 in total interest — for the exact same car.

In this case, the difference between fair and good credit scores could literally mean more than $10,000 in additional interest.

Pros And Cons Of Gm Financial

How to get a perfect credit score

You have many options for financing or leasing your next vehicle. The best deal for you depends on your situation and your personal financial goals. Using GM Financial to acquire your next vehicle may have the following pros and cons:

Easy to apply online or at dealership Maximum term length of 72 months
Special offers for military, first responders and employees Prime credit score is generally preferred

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What Is The Average Auto Loan Interest Rate

The average auto loan interest rate is 3.86% for new cars and 8.21% for used cars, according to Experians Q4 2021 State of the Auto Finance Market report. However, these rates wont necessarily give you a clear picture of what you might pay for a car loan.

This is because rates are based on a number of factors about you and your vehicle, including the items below:


How 0% Apr Car Deals Work

Why would a car dealer offer 0% financing on new cars? Its a way to sell more cars.

The 0% car finance deals are usually only available on new cars from the manufacturers captive finance company such as Toyota Financial Services or Ford Motor Credit Company and only apply to the manufacturers cars.

These deals are often offered when theres an excess supply of certain models, or perhaps at the end of the model year to make way for next years vehicles on the lot. Low APR deals are also a common marketing gimmick to get customers in the door. But even if youre unable to qualify for the 0% APR deal, you could still obtain a competitive interest rate with the dealers captive lender. Keep in mind that only those with excellent credit are most likely to qualify, so if the 0% APR is a deal-breaker for you, find out if youre eligible before you test drive a car you want to take home.

Its a good idea to get prequalified for an auto loan before you go to the dealership. While getting prequalified loan offers from other lenders wont give you a 0% APR in most cases, you can still get an idea if youre eligible for the lowest rates and get a sense of how lenders see your financial health. With a prequalification in hand, youll know if the dealers loan offers are competitive if you dont qualify for the 0% APR.

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How Can It Be Zero Percent

Automakers’ financing companies forgo the money they would have made on loans with interest in favor of selling more of a particular vehicle. This financing incentive can spark sales of a slow-selling vehicle or help clear out inventory to make room for cars from the new model year.

The availability of zero percent deals has followed a pretty rigid pattern, said Jeremy Acevedo, senior analyst for Edmunds. Zero percent offers typically peak in the summer months to stimulate sales for the outgoing model year and stay “relatively subdued” in the other months. It remains to be seen if this pattern will continue in an era of high interest rates.

And while such carmakers as Chrysler, Nissan and Toyota largely walked away from zero percent loans in late summer of 2018, shoppers could still find the offers on selected models from carmakers including Ford, Subaru and Kia.

Carmakers advertise the no-interest loans in commercials, at dealerships or on their websites. The Edmunds Incentives and Rebates page also highlights zero percent financing offers and other promotions for the month.

Sometimes a dealership will offer its own version of zero percent financing. In this case, the dealership opts to pay the interest on your loan, either to sweeten a deal or as an incentive for you to make a large down payment. It typically occurs when a buyer already qualifies for a loan with a low annual percentage rate and the amount being financed is a figure the dealer deems reasonable.

Is 0% A Good Deal

What Is a Subprime Auto Loan?

0% APR offers can save you thousands of dollars in interest payments over the life of the car loan, but you should be wary of the reason the dealer is offering them. If you read the fine print, you’ll realize that most zero APR offers will require you to be a well-qualified buyer with excellent credit and you cannot combine with other offers.

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Myautoloan: Most Popular Marketplace

As an auto financing marketplace, myAutoloan gives you the chance to get multiple loan offers all in one place. Once you enter your information on the website, youll start receiving offers from lenders. Borrowers might find this approach easier than applying with each lender individually. In addition, myAutoloan is open to borrowers with a minimum credit score of 575, making it an option for a wider range of people than many other providers.

What You Need To Know About Zero Percent Financing

8 Min Read | Jun 2, 2022

At first glance, zero percent financing may sound like a great ideaespecially if youre in the market for a new car. Essentially, zero percent financing means you dont have to pay interest on your purchase .

Thats how dealerships rope you in . . . with the flashy promise of a nice car without all the extra strings attached. But when it comes to buying a car, the only way to do it without strings attached is to pay cash. Were going to break down the basics of zero percent financing: what it is, how it works, who qualifies for it, and how to live without it.

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Getting A Car Loan With A Low Credit Score

To be clear, you can get a car loan with a low credit score. Although the subprime mortgage market has virtually disappeared since the financial crisis about a decade ago, the subprime auto loan market has exploded in recent years. Roughly 1 of every 4 car loans made in the U.S. is made to a subprime or deep-subprime borrower.

While the exact definitions of these terms vary depending on who you ask, the Consumer Financial Protection Bureau, or CFPB, defines subprime as borrowers with credit scores of below 620 and deep subprime as borrowers with scores below 580.

How To Live Without Zero Percent Financing

How To Get A PERFECT Credit Score For $0

Lets go back to that average $648 new-car payment. If you took that payment each month and saved it instead, youd have $15,552 in cash to spend on a reliable used car in two years. But why wait that long? Pick up a side hustle, cut back on eating out, and kick it up a notch! If you bumped that savings up to $900 a month, you could get a $16,200 car in just 18 months!

I know that saving up and paying cash for something is the opposite of what most people do. But most people are broke! And once the car is yourslike actually yours, fully paid forjust imagine the good things you can do with that money instead of throwing it away on a car payment. You can do things you actually want to do, like fund your retirement, give more to causes you care about, or even go on a family vacation.

Paying for large purchases without debt might sound crazy, but Ive seen millions of families at all levels of income do it. So, go for it! If anyone tells you how wrong and crazy you are, just tell them you have zero percent interest in their opinion.

About the author

Rachel Cruze

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Pros And Cons Of 0% Apr

The biggest, and only, benefit to zero percent financing is the ability to avoid paying interest on an auto loan. A zero percent APR can save you thousands of dollars in interest charges over the length of your car loan. Lets compare common interest rates to a zero percent loan to see how much money you could actually save:

  • Vehicle price: $20,000



As for the cons, zero percent financing is usually aimed at car buyers with the best credit. On top of that, the zero percent APR may only be available for certain makes and models or a specific loan term , which means the monthly payment could be higher than a longer loan term with a real interest rate. However, you can reduce the higher monthly payment by making a sizeable down payment.

Pros And Cons Of A 0% Percent Auto Loan

Ever been enticed by a zero percent auto loan commercial? If you have, then those ads are doing their job. Automakers have those offers out there specifically to catch your eye. Someone is actually going to lend money for free you ask? Yes, with a zero percent interest loan, 100 percent of every car payment you make is going towards paying off your new vehicle. It may seem too good to be true. How can that possibly be? Well, because its a great way for an automaker to get you in the door and have a good chance of selling a car. #WinWin

Automakers sometimes offer zero percent financing to help move a particular vehicle or model year faster. They may want or need to increase the sales of slower-selling cars or help clear out last years inventory to make room for newer models. The zero percent loan offer is not always the best deal on that new vehicle though. There may be a cash back offer in play as well. When considering a zero percent financing offer, you need to do the math to determine which offer actually saves you the most. Compare the cash back, any other type of dealer offer and the zero percent financing. Be sure to figure the loan term into the equation. If you plan on paying off the vehicle in only a few years, a cash rebate may actually be the better deal.

Whats the downside of a zero percent auto loan?

Put your glasses on and read the fine print

Get pre-approved for an auto loan

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