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Can you actually get interest-free car financing?

Such auto loans sound like no-brainers, but they aren't always such a great deal.

By Jun 26, 2014 3:18PM
This post comes from Gerri Detweiler at partner site on MSN MoneyIs interest-free auto financing just a scam? That’s the question that popped in my mind recently when my mother-in-law, who is fastidious about her finances, was turned down for that rate when she bought a new car. If someone like her, who has a history of no missed payments on any of her bills and very minimal debt, can’t qualify, who can?

While it’s not a scam, interest-free financing isn’t always easy to get. And even if you do qualify, you may not want it.

Salesman talking to woman in automobile showroom © Adam Gault/OJO Images/Getty Images"Typically (interest-free) loans are used by the manufacturers as a low cost leader to generate showroom traffic," says automotive credit expert Matt Briggs, CEO of

"Only one out of 10 consumers actually qualifies for (interest-free loans), and there are many factors that come into play," warns Tony Le, pricing manager with There are typically two hurdles consumers who don’t want to pay interest on a car loan have to overcome.

High scores pay off

The first is the high credit score that is often required.

According to Experian Automotive, the average credit score of borrowers who secured interest rates of 1 percent or less on their auto loans in the first quarter of 2014 was 748. (The scoring model used was VantageScore 3.0, which goes up to 850.) Only 8 percent of borrowers qualified for loans with rates of 1 percent or less, says Melinda Zabritski, senior director of automotive credit for Experian Automotive.

A car payment or a mortgage payment?

The other big hurdle? The monthly payment.

The average vehicle loan term is now 66 months, according to Experian, and the average amount financed is close to $30,000 ($27,612 to be exact). But some interest-free offers only extend to a 36-month loan. For a $30,000 loan, that would mean a monthly payment of $833 a month. "That’s the catch," say Le.

It's not always the case that you have to take a short-term loan, however. Some manufacturers offer 60- or even 72-month financing with no interest.

"When you are negotiating, are you negotiating rate, or are you negotiating payment?" asks Zabritski. "If you are going to try to get a lower payment, (no-interest financing) might not be available on longer-term loans."

One more potential pitfall: You may forgo the cash-back rebate in order to secure that rock-bottom rate, Le warns. offers a calculator that compares APR with the rebate to figure out which is the better deal.

The best of both worlds

Even if you don’t qualify for an interest-free loan, you may be able to get a low interest rate on a longer-term loan that fits your budget. Here’s what kind of rates consumers pay, on average, in different credit score ranges.

Auto Loan Financing

As you can see from the table, while the difference between the average monthly payment consumers with poor credit are paying versus those who have excellent credit is only $35 a month, over the life of the loan, it adds up to $6,470 -- and that's a lot! 

While there are consumers who get interest-free loans today, "anything between 2 percent and 3.5 percent is a good rate," Zabritski advises.

If you're not sure of your credit standing, you can check your credit score for free at Along with two scores, you’ll also get monthly updates and an action plan for your credit. The best time to check it is before you need to buy or replace your vehicle, since fixing mistakes or improving your credit can take time.

Graphic source: Experian Automotive, average loan terms for the first quarter 2014

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Jun 26, 2014 5:36PM
Nice math, Gerri Detweiler!  It is not "only $35 per month" difference for a total of $2485.  It is actually $6470.3... Gerri neglected to factor in the additional 8.6 months on the term.  Fact checkers should be hired.
Jun 26, 2014 5:58PM
You get what you pay for ;  One of the offers I saw locally was a 60 month loan at 0% , OR a $2500 rebate .  A 0% loan of $25,000 for 60 months is approx $417 a month , while a loan of $22,500, (using the $2500 rebate as down payment) and a 2.9% rate (available locally) , is $403 a month , with total interest  of $1679 ; Total paid is $24,179 which is over $800 cheaper . Zero isn't always zero, you have to do the math . Just another gimmick .  Plus ,  quite a few more buyers will qualify for the rebate instead of the 0% . 
Jun 26, 2014 6:28PM
This article is a load of crap. Not only is the math wrong in certain spots, but the author is trying to preach why paying interest is a good idea (article paid to you by car companies and banks)? Many with short history don't have a credit score of 748, but if you build a good history over the course of 5 years, it's actually a pretty easy to get (assuming you don't default on payments). I can't even comprehend financing $30k on a 3 year car loan. If I was stuck in that situation, I'd just get a lower model (something I can actually afford) or I'd save up a while and put more money down to lower the payments. I also find it hard to believe people are averaging $30k loans on cars. There are so many nice models of cars and even SUV's that come in way below that.  I'd rather save the money that would be spent on interest and put it toward something else. To each their own though.
Jun 26, 2014 9:57PM
My score is 800. I got a loan from Toyota at 0%/5 years. It's nice not paying interest.
Jun 27, 2014 11:22AM

Good credit=Great Intrest Rate


I finally upgraded for no $$ down no trade with a rock bottom rate.


Being responsible pays off kids-

Jun 27, 2014 12:04PM
IMHO,   People who think the 0% financing  is actually free are just fooling themselves.   Most of  time the buyer has a choice of a rebate or the 0% financing..... and even when a rebate is not offered. A better deal can be struck with a cash price. 

There is no such thing as a free lunch..... or free financing. 
Jun 27, 2014 10:56AM

We have had 2 auto loans at 0% for 60 months at the same time. Our income is about average and we have occasionally carried balances on credit cards. Of course we have also purchased several vehicles from the same dealer over the past 35 years.

What's our credit score ? Don't know, don't care. Apparently it's good enough.

Jun 27, 2014 3:46PM

Yikes! Who would want to go into debt for something as unimportant as a mode of transportation?

I drive a ’99 Toyota Camry handed down from my father-in-law who bought it new. I do my own maintenance so there’s minimal maintenance costs, no depreciation, low insurance ($25/month from Insurance Panda) and registration costs, no car wash expenses (I park it outside when it’s raining) and people think twice before trying to cut in front of me. It’s a comfortable ride on the highway but is also nimble on dirt roads. I could easily afford a new car but then I’d have to fuss about dents, scratches, car washes and all those other costs. It’s got a 3.1L V6 that achieves 30 mpg on the highway. As long as it continues to pass smog it’s a keeper... 

and I don't have to "pay it off"!

Jun 27, 2014 12:51PM
0.00% on our 2011 Chevy Traverse at year end when the 2012 were out.  Our credit is great, but not perfect.  
Jun 27, 2014 11:43AM
Pay 0% interest and get paid 0% interest, digging out of debt one stir stick at a time LOL.
Jun 26, 2014 6:44PM
if you have a good credit score 690 or above and your debt to income ratio is not out of balance you will qualify for the super preferred rate. 0% is on new cars only and is subsidized by the manufacture. Usually you get rebates OR 0% financing. Hope this helps
Sep 8, 2014 2:29PM

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Sep 8, 2014 2:29PM
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Jun 26, 2014 5:45PM
I had a 0% loan on my CTS-V back in 2011. 72 months, $30k trade in down, $570 a month. GM has been offering 0% APRs for years and years.

Wish I could have gotten a 0% on my 750Li. Best I could get was 2.67%, and its close to $800 a month.

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