The simple answer is: Yes, 0% APR car loans are good deals. When you pay no finance charges (interest) on a loan, you save a significant amount of money over the term of your loan — and you reduce the amount of your monthly car payment.

How much do you save with a zero percent loan?

Here’s an example:

Let’s say you buy a new car for $24,000 and you want a 60 month loan. If you were to get an auto loan at a conventional interest rate of 6.5%, your payments would be $470 a month and your total finance charges would be $4175.

If you bought the same car with a 0% APR loan, you would save the $4175 in finance charges and your monthly payments would only be $400 a month, a savings of $70 a month.

Getting a 0% APR loan sounds like a good deal — and it is — but what if the car dealer/manufacturer is also offering a rebate, which is typically offered as an alternative to the 0% loan. You must select one or the other, but not both. Which is better?

To continue with our example, let’s say the car manufacturer is offering a $4175 rebate (we’ve purposely made it the same as the finance charges above). So, your choice is to take the $4175 cash rebate, which you would use as a down payment to reduce the amount of your loan to $19,925 — OR to take the 0% loan which also saves you $4175 over the life of the loan. Which is best?

We’ve already said that the 0% loan gets you a $400 monthly payment. However, if you accept the $4175 rebate instead (at normal interest rate), your payments are only $388 a month — $12 less than the 0% APR deal.

So, what’s the catch?

In order for the 0% APR deal to be the best deal against a cash rebate, the rebate must be relatively small compared to the savings in finance charges of the zero percent loan. In other words, in our example above, the rebate must be at least $4000 for it to be a better deal. And $4000 is a large rebate that you don’t see very often on new cars.

In conclusion, unless the car manufacturer is offering some very large rebates, a 0% APR loan will be a better deal. If you want to take a look at current 0% APR deals, visit our sister site at Best Car Deals.

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