Zero Percent Car Loans

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Zero percent car loans are often advertised as one of the best deals you can get when you're buying a new car. This means that when the bank gives you a car loan, it won't charge you any interest for the life of the loan. You'll sometimes hear people call such financing "free money." It's not that exactly, but it's as close as you're likely to get.

It all sounds good, but there's one big problem. According to Edmunds data, zero percent car loans hit an all-time low in the second quarter of 2025, accounting for less than 1 percent of all car loan interest rates. Compare that to just five years ago, when zero percent offers reached a record high of 24% of loans taken out. Back then, it was the early stages of the pandemic, and automakers were desperate to sell cars to people who were choosing to stay home.

"Zero percent loans have essentially been phased out of the lending landscape," said Ivan Drury, Edmunds' director of insights. 

Rising interest rates are partly to blame. Zero percent loans are free money if you're the buyer, but not if you're the lender, which has to pick up the tab, similar to how an automaker pays for traditional cash-back rebates.

Plus, these loans aren't available to everyone: You typically need to have a credit score above 700 to qualify. If you can tick that box, you can score some significant savings: A buyer who gets a zero percent interest deal on a $40,000, 72-month loan would save roughly $7,800 in interest charges, compared to a loan with the current average annual percentage rate (APR) of 7.3%.

Now, if you can find and qualify for a zero percent car loan, it sounds like a no-brainer, right? But is a zero percent loan really the best deal? Are there any catches? And if you were planning on paying cash for your car, is it even worth considering? Read on for more information.

Jump to:

• How is a zero percent interest car loan possible?
• How to qualify for a zero percent car loan
• Bonus cash vs. zero percent financing: Which is the better option?
• Is a zero percent car loan worth it if I'm paying cash?
• Zero percent car loan dos
• Zero percent car loan dont's

How is a zero percent interest car loan possible?

Automakers' financing companies forgo the money they would have made on loans with interest in favor of selling more of a particular vehicle. This financing incentive can spark sales of a slow-selling vehicle or help clear out inventory to make room for cars from the new model year.

In the past, the availability of zero percent deals followed a consistent pattern. The zero percent offers would typically peak in the summer months to stimulate sales for the outgoing model year and slow down in the other months. Due to the uncertainty of this economy, it remains to be seen if this pattern will continue in an era of high interest rates.

Carmakers will typically advertise the no-interest loans in commercials, at dealerships, or on their websites. Edmunds' Incentives and Rebates page also highlights zero percent financing offers and other promotions for the month.

Sometimes, a dealership will offer its own version of zero percent financing. In this case, the dealership opts to pay the interest on your loan, either to sweeten a deal or as an incentive for you to make a large down payment. It typically occurs when a buyer already qualifies for a loan with a low APR and the amount being financed is a figure the dealer deems reasonable.

How to qualify for a zero percent car loan

You'll need excellent credit to qualify for zero percent financing. The fine print on automaker websites often includes phrases such as "for qualified buyers" or "based on Tier One credit." However, the language doesn't really spell out what that means in terms of a FICO score. The credit score range itself can vary from one automaker to another, so it's a good idea to call the dealership for the car you're considering to determine the requirements.

If your score is slightly lower, zero percent offers are still worth looking into. There have been cases of people getting approved despite a lower credit score because of a solid history of making payments on time and loyalty to the car brand.

Bonus cash vs. zero percent financing: Which is the better option?

Sometimes, the automaker will give shoppers a choice between a bonus cash rebate or a loan with a very low interest rate. Bonus cash would usually be the way to go, but when it comes to zero percent loans, the cash has to be sufficient to offset the finance charges the buyer is saving.

For example, let's say you were buying a $40,000 car with a $4,000 down payment and you squalified for a five-year loan with an interest rate of 5%. You then have a choice: Should you take the bonus cash incentive or a zero percent loan with no additional discount? 

It would take an incentive of at least $4,220 — the total finance charges of the standard loan — to beat the zero percent loan offer. Any amount of bonus cash that's less than that makes the zero percent loan the better option. Use this Low APR vs. Cash Back Calculator to input your own scenarios and see what option works best for you.

There's also a third option: Take the bonus cash and refinance the loan later at a lower rate, assuming rates come down and you qualify.

Is a zero percent car loan worth it if I'm paying cash?

If you planned on buying a car for cash (lucky you), there might still be some value in taking out a zero percent loan. The biggest benefit is that it allows you to keep your money free for other purposes, such as an emergency fund or investments. Double-check with the lender to see if there is no penalty for paying off the loan early. Having financed a car appears as a positive mark on your credit report. Buying for cash doesn't show up at all.

In some cases, the dealership may be getting an incentive from the automaker to promote the zero percent loan, so taking the dealer's financing may help you obtain a better price on the vehicle. The automaker typically pays the dealership a bonus on the back end of the deal, which in turn would allow it to be more flexible with the price. It isn't a common occurrence, but it's something you should be aware of in case it comes up.

Zero percent car loan dos

Do make sure you really want the car. Just because a car has a zero percent loan offer doesn't mean it is the right car for you. Make sure you test-drive it to be sure it fits your needs.

Do get preapproved for a car loan. It is still a good idea to secure financing with your bank or credit union before you go car shopping. This preapproval can serve as a backup loan in case you don't qualify for a zero percent offer. It's also useful to have a loan in hand so you can compare its interest rate to the dealership's financing. You might decide that the combination of your bank loan and the dealership's bonus cash offer makes the most sense for you.

Zero percent car loan dont's

Don't skimp on the down payment. Some dealers may give you the option to put nothing down at signing. We recommend you put down 20 percent, or as close as you can get to that figure, to offset depreciation. If you can't manage that, see if your insurance company offers new-car replacement insurance. If it doesn't, consider getting gap insurance.

Don't take out a loan for more than 60 months. Some automakers offer 72-month loans to help make the payments lower, but there are many drawbacks to taking out a longer loan. The car's value will have greatly diminished by the time you finish paying for it. And there's a good chance you'll be tired of your 6-year-old car just about the time you make your last payment. A shorter loan means you can drive a car you still love, free of monthly payments.