Having a zero percent APR on a new vehicle purchase means you can take out an auto loan without having to pay back interest on the loan.

Zero percent financing deals are not one and the same, however. Some dealerships limit this zero percent interest rate to a predetermined time frame, usually 36 months. Other dealerships might offer zero percent financing throughout the duration of your repayment plan. The type of vehicle you buy and where you purchase from could all influence a zero percent financing package.

Who Qualifies For Zero Percent Financing?

The major upside of this type of auto financing is that you’ll typically be paying the same for a new vehicle as a cash buyer would. Unfortunately, while a dealership might advertise zero percent financing on new vehicle purchases, not everyone can qualify. This attractive financial package is typically reserved for individuals with high credit scores. If you have struggled with bad credit, car loans, including zero percent APR deals, might be difficult or impossible to qualify for.

Zero Percent Financing Declines Since Pandemic Highs

During the pandemic, zero percent financing deals were at an all-time high according to automotive analysts. In a new report published by Auto News, interest rates on new vehicle loans are expected to rise along with the Federal Reserve’s latest rate hikes.

Along with these rising interest rates, there has been a decline in zero-percent financing deals. In the third quarter of this year, all loans that were financed at zero percent hit a new low at 1.1%. During the second quarter of 2020, at the height of the coronavirus pandemic, these zero-financing loans hovered at around 24.2%. Before the pandemic hit, the average rate of zero percent loans was 7.1%.

Factors Influencing Auto Loans

There are many factors contributing to the steep decline of zero percent financing on new vehicles. Inflation, interest rate hikes, and automotive supply and demand all played their part in limiting zero-percent financing loans.

One of the biggest influences, however, was the national response to the pandemic. Stimulus checks, increased vehicle demand, and other financial infusions into the economy allowed drivers to put themselves in a favorable financial situation. In fact, many American families were able to eliminate or significantly minimize their credit card debt during this period. This newfound financial freedom allowed many people to qualify for these competitive 0% interest financing deals.

However, as credit card debt climbs back up and issues with automotive production continue into the current day, these enticing deals have become more exclusive, especially for drivers who are limited to qualifying for less favorable or overall bad credit car loans.

Navigating Auto Financing

It goes without saying that securing attractively priced auto loans and avoiding bad credit car loans largely depends on your credit score. The higher your credit score, the better your average APR for a new vehicle will be. According to the latest data, the overall average auto loan interest rate was 6.63% for new cars. Drivers with super prime credit scores ranging from 781 to 850 can score offers as competitive as 5% percent.

Overall, these higher interest rates are likely here to stay and these zero percent financing deals will likely continue to dwindle. Despite this, there are still many ways to save on your next automotive purchase. Doing your research, saving up, and planning ahead can put you in a great position for big savings.

This post may contain affiliate links. Meaning a commission is given should you decide to make a purchase through these links, at no cost to you. All products shown are researched and tested to give an accurate review for you.

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