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Ever wonder about 0% loans? Are they too good to be true? And if so, why would the company even offer it?


Ever wonder about 0% loans? Are they too good to be true? And if so, why would the company even offer it?

It doesn’t take a genius to figure out that car dealerships advertise 0% car loans with small print that cite unworldly credit requirements. When normal customers apply for a loan the rate is less than extraordinary. But the dealership successfully used the 0% loan as a teaser to get people in the door. Nine times out of ten, the customer will buy anyway.

This isn’t just the case with loans. Dealers will advertise incredible pricing on a certain model car only to have one vehicle in that particular “trim level” available on the lot. But they sure have plenty of others to sell that cost thousands more.

Lease pricing, too, is heavily dependent on your credit. Most leases require a score of at least 700 to qualify, and monthly payments will be much higher than advertised the lower your credit score (check your credit report now).

Of course, a few people qualify for the lowest available financing. The ones who need it least. Most people who can drive away with a 0% car loan have near spotless credit, and could probably buy the car with cash if they chose. Of course, taking 0% financing is actually better than paying cash because you can continue to earn interest while paying off the 0% loan.

Wondering how dealers can afford it? That’s easy. They’re still screwing you on the price of the car!

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.