What you need to know about zero percent car loans

A zero percent loan is often advertised as one of the best deals you can get when buying a new car. You will sometimes hear people call such funding “free money”. It’s not exactly that, but it’s as close as it gets.

And these loans aren’t available to everyone: you generally need to have a credit score above 700 to qualify. If you can tick this box, you can realize significant savings: a buyer who gets a 0% interest rate on a $25,000 loan over 60 months would save $3,300 in interest charges, compared to a loan with an average APR of 5%.

Lately, however, zero percent offers have become less plentiful. In August 2017, for example, 14.6% of auto deals were funded with zero percent loans, according to Edmunds analysts. By August 2018, however, that number had dropped to 7.4%.

Rising interest rates are to blame. Zero percent loans are free money if you’re the buyer, but not if you’re the automaker, who has to foot the bill for such offers, just as it does with traditional cashback.

Provided you can find and qualify for a zero percent auto loan, it sounds like a no-brainer. But is a zero percent loan the best deal? Are there any pitfalls? What if you were planning to pay cash for your car, is it worth considering?

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