Are Zero Percent Car Loans Cheaper Than Manufacturer Rebates?

Zero percent car loans are still available for some new Ford, Lincoln, Mazda and Toyota cars. Most car manufacturers offer such financing deals between August to October each year, in order to push more sales to potential car buyers who are still sitting on the fence.

Even though interest free financing to buy a car sounds cheap, you need to be careful since there may be hidden costs involved. Do not be surprised if getting a online car loan turns out to be cheaper compared to the 0% APR loans at car dealers.

Firstly, not everyone is going to be eligible for zero percent car loans. Only those with above 720 FICO credit score can apply, while you may still get low interest car loans. However, watch out on the car price since dealers are more likely to increase them since they will not be making much from the financing side. Try to bargain down the car price before you even ask about the financing. This is because dealers may not be willing to compromise on the car price discount once they know you qualify for zero interest car loans. Every $1000 reduction you get will save you money.

Note that zero percent car financing may only be applicable for short term car loans. That means you have to pay more every month, which means the cheap manufacturer financing may not be feasible for your situation. Usually, zero percent deals are only available on four-year car manufacturer loans. On the other hand, you can get flexible 60 months or even 72 months car loans from banks and credit unions. Even though you need to pay interest

Another reason not to take up car manufacturer’s special 0% APR financing is the loss of cash back rebates. If you use your own financing and take the manufacturer rebate, you spend a bit more on the interest but your monthly payment is substantially lower, making it easier to pay for the car. For example, with a $3000 manufacturer’s rebate, your entire financed amount is reduced to to $27,000. For a 5% auto loan for 60 months, your monthly payment will be around $435, while your monthly payment for $30,000 financing at 0% for 4 years is $620.

So not everybody will be able to benefit from special zero APR manufacturer financing offers, especially if you need bad credit car financing. It may be better to negotiate for a lower car price and get the manufacturer cash back rebate instead. If affordability due to the shorter loan term is not a problem, you should still ask for the difference in rebates then use a car loan calculator to see which is a better deal. this is especially true when you qualify for very low rate car financing from banks.

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