DETROIT — When a car dealer offers to loan you the money to buy a car at zero interest, it gets your attention. Yet that cheap money might not be the best deal you can get.
Dealers can offer zero-percent financing through automakers’ finance companies because, unlike banks, they make money on the sale of the car and don’t need to rake in interest payments. Zero-percent financing offers have been common in the last four years as auto sales recovered from the recession while interest rates remained low, says Philip Reed, a senior editor of consumer advice at the car shopping site Edmunds.com.
Not everyone will qualify. Zero-percent financing is generally reserved for those with the very best credit. Experian Automotive, which tracks auto loans, says 7 percent of new car loans had an interest rate of 1 percent or lower in the first quarter of this year. By comparison, 29 percent of new car loans had interest rates of 2.05 percent and below.
Before biting on the zero-percent financing, check for other deals such as cash-back offers. Fiat Chrysler, for example, currently has two offers for the 2015 Jeep Cherokee SUV: zero-percent financing for 60 months or a $2,000 rebate. Edmunds recommends taking the cash to reduce your total loan amount for the base all-wheel-drive model from $27,123 to $25,123. Even with a 2-percent interest rate, you’ll wind up paying $440 per month with the cash deal. That compares to $452 per month with zero-percent financing.
Late summer is a particularly good time to scout for deals, and automakers will soon be trying to clear 2015 models off their lots. Ford is currently offering no-interest financing for up to 72 months on most of its cars and SUVs, while Toyota is offering zero-percent financing on the Camry and Prius sedans. Buyers can also get zero-percent financing on the Buick Enclave and Hyundai Santa Fe SUVs.
Here’s some more advice on financing from the experts: