What is 0% Car Financing?


In buying a new car, one of the best things you can get is a zero percent loan. But what exactly is a zero percent loan or financing? Well, zero percent financing is a no-interest financing deal. Some new cars that do not achieve the expected sales pace or the end of the product cycle will start to offer incentives in order to increase the tempo of the sales. With that, you cannot just get any car with a zero percent interest offer. Although most of the vehicles that have a zero percent interest offer do not live up to their sales potential, it does not mean that they are not good vehicles. They are maybe up for replacement or just merely behind their sales goals.

In this article, we will be looking at information concerning the 0% car financing and its perks.

Let’s say you are to buy a midrange car that costs about $42, 000. With zero-percent financing, you will pay no interest on your auto loan. This deal can save you thousands of dollars in interest payments during your car loan. In addition to that, this also lowers the cost of buying a vehicle. So, let’s get back to your $42, 000 midrange car. If you have a five-year zero percent loan, you’ll just divide the $42,000 by let’s say, 60 months (five-years), and you will have a monthly payment of $700.

Without a zero percent loan, customers would have to pay interest. The average percentage offer for a five-year vehicle loan is about 4.6%. Using an auto loan calculator, plug the price of the vehicle, its interest rate, along with the loan term and you’ll get a monthly payment of about $785. Over the life of the loan, you’ll pay approximately $5,000 of interest. Just imagine the cost you will save if you avail of a 0% car loan.

So, what are the other perks in availing of this deal?

So, what are the other perks in availing of this deal

It will reduce your monthly payments

In the computation shown above, you can definitely see the interest you are to save from the vehicle’s interest. That $85 monthly difference can be the difference itself between the car that would fit your budget versus the car that doesn’t. Generally speaking, the less expensive the vehicle you are to finance, the smaller your savings will be. However, it will be the opposite if you will find time in financing your potential savings.

Remember not to buy a car based on the monthly payment only. Instead, look at the total cost of the car you want to buy including its cost of financing. On the other hand, dealers will want to keep you focused on the payment. It’s their easy way to get you to overpay for a vehicle without you even realizing it. That’s business.

You can now invest your cash

Customers who are planning to pay a car in cash that has a zero percent interest deal may also consider taking out the car loan and putting the money in their savings. In that way, your cash can earn little interest while you are slowly paying off your vehicle loan. It will be taxed and it probably won’t be a lot, which will slightly reduce the amount you are to make. In order for this to work, there are some warnings that you should also consider. The first is that there are loan fees and their cost may block any interest that you’ll earn from your savings. With that, you may want to isolate the money from all the rest of your bank accounts. After that, you can now automatically set up a monthly payment for your loan.

One thing to remember, though. While you can earn interest in this kind of method, most of the time, it is just a lot easier to pay cash for a car to avoid the hassles of having a loan.

It allows you to get a shorter loan

Generally, you, as a customer wants to have the shortest vehicle loan that you can afford. Having this deal of 0% interest helps you do that, but perhaps not in the way you think it will. Since you are paying no interest, there is no real benefit to have the vehicle loan for any shorter term than you qualify for. In this case, you make an extra or a little payment each month to reduce the length of your loan.

As an example, imagine that if your credit qualifies for, let’s say five-years, with a zero-percent loan on a car worth $25,000. Your car’s monthly payment would be approximately $400 a month. Now, if you take out the loan, and pay $100 more a month, you can have your vehicle paid in four years, rather than in five years. You can certainly do that if you are paying the interest, given without the pre-payment penalty. However, it is much easier to have no interest financing.

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