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Zero Interest Auto Loans: Before You Sign

You’re seeing them on tv. You’re hearing them on the radio. You’re reading them on the web. The ads are everywhere…

“Zero percent financing on your next auto loan!”

“Pay no interest ever!”

“Stop making interest payments right now!”

In the era of COVID-19 pandemic lockdowns, auto financing offers have been fast and furious in their response to the economic fallout. While now is considered by many to be a good time to purchase a vehicle, it’s still true what they say; all that glitters is not gold. Before signing a contract for that shiny four-wheeled dream vehicle with that new car smell, take some time to consider and balance several important factors when it comes to financial incentives for auto loans:

Zero percent financing offers are not for everyone (literally, they’re not offered to most)

If your credit score falls below 700, it’s unlikely that you will be offered any zero-interest auto loan. To avoid disappointment, be sure to know your credit score before you set out on your next car buying adventure. Don’t know your current credit score? Check out Credit Karma, a free tool for monitoring your credit score on the web or via their mobile app on (iOS) or (Android).

If you’re aware that your credit score falls under the threshold for zero percent financing offers, consider asking for a pre-approval from a trusted financial institution to get a better idea of what loan terms are available to you.

A single late payment can have significant financial consequences

The terms and conditions that accompany zero interest loans can be unmerciful in their response to a late payment. Not only can you be subject to penalties and interest rates on future payments, your loan can be backdated to include all interest from the date that you purchased the vehicle. If you’re unable to guarantee yourself that you can make on-time payments over an extended period of time, other financial incentives may be a better choice when purchasing your next vehicle.

Increases in your credit utilization rate may hurt your credit score

Taking out a loan on a relatively large purchase like a vehicle will likely increase your credit utilization rate, defined as the amount of credit that you’re currently using divided by the total amount of credit available to you. As credit utilization rates are an important ranking factor for credit scores, you may wish to consider keeping other balances low for as long as possible to keep a favorable ratio of used credit to available credit.

You may be better off with a strong rebate than opting for zero percent financing

While zero percent loans sound like a no-lose proposition, buyers should consider whether an available rebate on the vehicle price will represent greater savings than the financing incentive. While number crunching is enjoyed by few, you owe it to yourself to do the math before deciding which avenue to take.

Check out the “Car Cash Back Or Interest Calculator” at to determine which option will end up saving you the most in the long run.

Financial incentives shouldn’t mean that you can’t haggle on the extras

Zero and low interest auto loans are popular for good reason. Saving thousands over the life of a loan is a smart choice for those in the market for a vehicle. But why stop there? Potential buyers shouldn’t be shy about negotiating the price of vehicle options or extras simply because attractive loan terms are also available. Remember, in times of normal to high supply but low demand for vehicles, the consumer is holding the cards.

Zero-interest offers can lead to overspending

There’s a rumor that marketers and advertisers know us better than we know ourselves. Competitive financing options and other incentives are attractive and a good option for car buyers. In some cases, however, these options have been known to entice car buyers into purchasing vehicles and options that would normally be considered out of their price range. Car shoppers should be aware that even in times of financial incentives, it’s important to consider making a reasonable down payment and achievable monthly payments before proceeding.

Need help making a reasonable offer for a vehicle? Check out the True Market Value feature and car price negotiating tips at Edmunds.

With auto dealerships looking to move inventory during these challenging times, now may be an opportune time indeed to purchase your next vehicle. It’s just as important to remind ourselves, however, that reading the fine print and practicing financial responsibility is a smart choice in any economy.

DNCU provides free advice on vehicle purchases.

Click here for more information or call us at 1-877-818-DNCU to speak with a DNCU loan officer today.