Getting a car loan doesn't have to be a nightmare, even with bad credit.

Qualify for an Interest Free Car Loan and Pay Zero Interest

last updated November 8, 2013 by

On the life of a typical $30,000 car loan, borrowers will pay anywhere from $4,500 to $10,000 in interest, depending on the interest rate and the life of the loan.  Even though interest rates are at their lowest level in several years, this is still a sizeable bite out of a borrower’s paychecks each month.  Some borrowers might qualify for an interest free loan, allowing them to pay only principle payments to the dealership that they purchase the car from.

Who Qualifies for an Interest Free Car Loan?

Interest is used by lenders as a payment to offset the risk that they take on a loan, so generally zero-interest loans are only available for those with great credit ratings and unblemished payment histories.  Some car dealerships will use zero-interest car loans, usually for short terms such as one year, to draw in qualified buyers of new cars and luxury automobiles.

Fake Zero Interest Loans

On the other hand, there are also loans that are technically zero interest but are actually a bad deal.  For example, some commercials advertise two different prices, such as $20,000 for a car if you purchase it in cash or $22,000 if you finance the car with zero interest.  In this case, the car is not actually zero-interest, the $2,000 premium that is paid over the value of the car takes the place of interest for the lender.

How to Ask for a Zero Interest Car Loan

When you ask for a zero interest car loan, first make sure you know the price of the car if you were going to buy it in cash.  Have the salesperson give you a written or oral price guarantee as if you were going to purchase the car outright, and then have them draw up the terms of the zero-interest loan agreement by comparison.  If the salesperson starts to add different fees and charges to the zero-interest loan, and it ends up being more expensive than the alternative cash price, just walk away.  An interest-free loan is nothing more than the cash price of an automobile spread over a number of monthly payments.

Zero Interest Auto Loan Tips

Zero interest auto loans will usually have higher payments than other loans, as they are spread over a shorter amount of time than traditional loans.  On the other hand, since you are not paying any interest, every payment towards your car goes directly towards paying the loan off and increasing your equity in the automobile.  Interest free auto loans are increasingly rare, but they are the ideal way to finance a car for people with good credit and good financial histories.