When Zero Percent Isn’t Your Best Auto Loan Option

When it comes to auto loans, a 0% interest rate is a head-turner, but it’s not always the best deal.

Car dealerships generally advertise 0% offers when they are looking to make room in the showroom for newer models. The offers come from the financing arms of the large auto manufacturers, which unlike traditional lenders, profit directly off the sale of the car and don’t necessarily need the interest revenue.

But like any great deal—there’s a catch. According to The New York Times, only about 10% of consumers actually qualify for 0% interest loans, which require pristine credit—usually a FICO score of 720 or higher. Those loans typically are reserved for a limited number of models and are not available if you’re shopping for a used car—which cost less than newer models.

These 0% loans often are paired with shorter-term loans, which cost you less overall but mean a higher monthly payment. So, before you head to the dealership chasing a 0% loan, keep these points in mind:

• Look at all available deals. Check for other offers, such as cash back. If you can get a rebate—which lowers the overall price of the car—paired with a low-interest loan, it may save you more than the 0% financing. Be sure to crunch the numbers with an online calculator. 

• Negotiate the price. Before you get to the interest rate, finalize a sale price and stick to it. Don’t feel pressured to accept expensive add-ons. Once the sale price is established, then talk about financing; and

• Get preapproved for a loan at Texas DPS Credit Union. Heading to the dealership with a firm offer in hand will give you a point of comparison and puts you in a stronger negotiating position. Credit unions, as not-for-profit financial cooperatives, offer competitive rates.

Have additional questions before heading to dealership? Not sure about what you can qualify for? Our purpose at Texas DPS Credit Union is to help you achieve your vision. Contact a Loan Officer today to start the conversation.