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0% APR Car Loan: How Can You Get One?

Getting a 0-APR Car Loan
Austin Kilham
Austin KilhamUpdated January 7, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
By getting a car loan with a 0% annual percentage rate (APR), you’ll avoid paying interest or fees on your loan. This can feel like pulling a fast one on your lender, but know that lenders are no fools — they don’t give away something for nothing.To get one of these offers, you’ll usually need excellent credit, proof of stable income, and often a down payment. Additionally, there are potential downsides of 0% financing vehicles to be aware of. Here’s a closer look at what to look out for, as well as how to get a 0% APR car loan.

What Is a 0% APR on a Car Loan?

A 0% APR car loan has no fees and no interest rate. That means that all of the money you repay each month goes to paying down your principal, or the amount you borrowed.Usually, when you take out an auto loan, your lender will charge you interest on the loan as well as fees to cover the cost of processing the loan. Car loan interest rates are typically based on the amount of the loan, the loan term (the period over which you repay it), as well as factors like your credit score. A loan’s APR represents your monthly payment, including both interest and fees.In general, 0% vehicle financing is offered through a car manufacturer or dealer through the organization's captive finance company. Banks and other lenders typically do not offer 0% APR loans, as lenders make their money through interest and fees. Dealerships, on the other hand, can make money through the sale of a vehicle, so they don’t necessarily need to charge interest. What’s more, if they offer a customer a 0% APR, that customer may be more likely to buy a new car, and they may be willing to spring for a pricier vehicle.These 0% APR loan deals are usually only available for new cars, or in some rare cases, for certified pre-owned vehicles. A 0% APR loan is a type of secured auto loan. This means that if you miss a payment, the dealer can repossess your vehicle.Recommended: Understanding Car Loans

Requirements for 0% Financing on Vehicles

When a dealer offers you 0% APR, they’re taking a big risk. As such, you’ll likely need a relatively high FICO® credit score to qualify. In fact, you may need a credit score of 740 or higher.The dealer also may require that you make a hefty down payment to qualify for such a good auto loan interest rate. And even if you make the down payment, you’ll also likely need to prove that you have stable income that will allow you to keep up with future payments. 

Ways to Qualify for 0% APR on Car Loans

If you’re hoping to secure a 0% APR, there are some steps you can take that may make it more likely a dealer will offer it. Namely, you’ll want to do everything you can to keep your credit score high. 

Making Payments On Time

There are several factors that make up your FICO score, each of which is weighted differently. Your payment history is the most important factor, comprising 35% of your score. This may come as no surprise, since lenders will want to know that you have a track record of paying off your loans before they offer you a new one. Make sure you always make payments on time and in full on open lines of credit.

Reducing the Balance on Your Lines of Credit

The amount you owe represents 30% of your credit score. If it looks like you’re using most of your available credit, lenders may worry that you could be overextended and thus at greater risk of defaulting on a new loan. Paying your existing balances can help your score. Another way lenders may evaluate whether you’re overextended is by examining your debt-to-income ratio (DTI), which is the amount of money you owe compared to how much you earn. Lenders see borrowers with lower DTI as less risky and more creditworthy. You can also lower your DTI by paying off outstanding debts.

Building a Long Credit History

Length of credit history represents 15% of your score. Showing lenders that you have long relationships with other lenders is another way to boost your creditworthiness in their eyes. Because your credit score takes into account how long your lines of credit have been established, it can make sense to keep lines of credit open. For example, if you have a couple of credit cards and mainly use the newer of those cards, it can still make sense to keep both accounts open. There are, of course, circumstances where this might not make sense, such as if one of the cards charges a steep annual fee.

Limiting Lines of Credit 

The rest of your credit score is based on credit mix and new credit, both of which represent 10% of your score. Lenders will look to see if you’re able to juggle a variety of loan products, including credit cards, student loans, and mortgages.Additionally, lenders will look at what credit accounts you’ve opened recently. Research suggests that people who open multiple lines of credit in a short period of time may be at greater risk of default. Particularly if you’re trying to build your credit score, you may consider limiting the number of new lines of credit you pursue.

How Does 0% APR Work When Refinancing a Car Loan?

One of the potential drawbacks of 0% APR is that repayment terms tend to be short, often 48 months or less. Monthly payments may be relatively high. If your payments become unmanageable, you may be able to refinance your loan. Automakers may use other tactics to entice you to purchase a new vehicle from them, including cash bonuses. You typically can’t take 0% APR and a cash bonus, and if you choose the cash, you may end up with a higher interest rate. If that’s the case, you might consider refinancing to a lower interest rate in the future.In both situations, however, the downside is that applying for two loans within a relatively short period of time can affect your credit score. This is because each application requires a hard inquiry, which usually causes a temporary dip in score. Recommended: What Credit Score Do You Need to Refinance a Car?

Refinancing Auto Loans With Lantern

When you refinance an auto loan, you pay off your old loan with a new one that ideally comes with a better interest rate and possibly better terms. You may consider refinancing if your old loan becomes unmanageable, your finances or credit score improve, or interest rates drop.To find the best auto loan refinancing rates and terms, it’s crucial to compare lenders. Lantern by SoFi can help you analyze top lenders and prequalify for loans. When you choose a loan, Lantern will take care of paying off the old lender and retitling your vehicle.Compare auto loan refinancing rates today with Lantern by SoFi!

Frequently Asked Questions

How can you get 0% APR on your car loan when refinancing?
What credit score is required to get 0% APR on your car loan?
Is a cosigner required to get 0% APR on your car loan?
Photo credit: iStock/skynesher

About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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