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0% financing is the best discount on a new car or truck
A free loan is the best kind of loan.
If you can qualify for 0% financing on a new car or truck, you shouldn't hesitate to take it.
You'll get the lowest possible monthly payment.
With used-car prices up and used-car loans still averaging more than 6%, free financing could actually make the payments on a new car less than what you'd pay for a used car.
You'll also save thousands of dollars in interest charges over the course of the loan.
The average cost of 36-, 48- and 60-month new-car loans is just over 5%, according to our recent surveys of major banks and finance companies.
But automakers will subsidize the cost of loans to provide a much lower, discounted interest rate on models they're anxious to move off dealer lots.
Here's where you'll find all of the discount loans, rebates and lease deals currently offered by the major brands.
While 2.6% or 1.9% financing is great, paying no interest at all is the ultimate deal.
Let's say you finance $25,000 for four years at 0%. You'll pay $521 a month for a total of $25,000.
If you finance that same $25,000 at 5%, you'll pay $576 month and a total of $27,635 over the four years of the loan.
That's $2,635 in interest you wouldn't be paying with 0% financing.
Even if you were going to pay cash, it makes sense to take advantage of 0% financing.
You would use the lender's $25,000 for free while earning interest on your $25,000 through savings or investment.
If all you did was put that $25,000 into a CD that pays a measly 1%, it would earn $1,015 during the 48 months you were paying off the car loan.
Or let's say you were thinking about buying a late-model used car or truck.
If you borrowed $17,000 at 6% for three years -- the typical cost and length of a used-car loan -- your monthly payments would be $517.
With 0% financing, you could borrow up to $24,816 for 48 months on a new car or truck and your monthly payments would be the same $517.
That's an opportunity you ought to consider.
Many times automakers will offer you a choice between a discount loan and a cash rebate.
A 0% loan will trump all but the most humongous rebates.
Let's say you were offered $2,000 cash back or free financing on a full-size pickup that cost $28,600.
A 10% down payment of $2,860 would leave a balance to be financed of $25,740, and that's how much you would spend on a 48-month loan since you'd pay no interest.
If you took the hefty $2,000 rebate, deducted it from the balance and financed the remaining $23,740 over four years at 5% -- a rate that's right at the national average -- you'd wind up paying $26,242.
The discount financing is worth $502 more than the rebate.
You don't have to guess when presented with this kind of decision.
Our Rebate vs. low-cost loan calculator will tell you exactly which discount saves the most.
The call is much closer when you're offered discount financing that's not as generous as 0% and you're buying a less expensive vehicle.
Let's say the choice is between $1,000 cash back and 2.9% financing on a midsize sport-utility vehicle that costs $21,700.
If you pick the discounted rate and make a down payment of $4,500 (approximately 20%), you'd wind up financing $17,200 at a total cost of $18,238 over 48 months.
If you choose the $1,000 cash rebate and use it to reduce the loan amount to $16,200, then a 5% loan would cost $17,907.
Here, the advantage lies with taking the rebate, but only by a few hundred dollars.
The big hurdle to obtaining a discount loan is qualifying for one.
Discount loans are only available through the financing companies owned by, or affiliated with, the manufacturer offering the deal, such as Ford Motor Credit or Toyota Financial Services.
They offer no hard-and-fast rules for how low credit scores can be and still win approval. But if you have below-average credit (a credit score of 670 or less), don't be shocked if you're turned down.
As Honda constantly repeats in all of its ads for discount financing, it's only available "for well-qualified buyers."
Use our extensive database of auto loan rates to compare deals from dozens of banks and finance companies.
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