Is It Still Possible To Get 0% Financing When Buying a Car?
Written by
Gabrielle Olya
Edited by
Amber Barkley
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It wasn’t too long ago that every car ad seemed to be offering 0% financing on new vehicles — an incredibly tempting offer for potential buyers. But now, almost no one is offering these incentives — and therefore, no one is getting them, either.
According to a recent Edmunds analysis, there has been “a notable decline” in the share of new vehicle sales with 0% financing from 2019 through the third quarter of 2023. According to Edmunds data, 0% financing reached a peak in the second quarter of 2022 at 24.2% of all sales, but dropped significantly to just 1.1% of transactions in the third quarter of 2023.
Here’s a closer look at why 0% financing offers have largely disappeared, and when (if ever) we can expect them to return.
High Interest Rates Are Largely To Blame for the Disappearance of 0% Financing Offers
As the Fed continues to bump up interest rates, 0% financing promotions have steadily declined in popularity.
“The overall interest rates are too high, so [0% financing] just isn’t available anymore,” said Joseph Yoon, consumer insights analyst at Edmunds. “That’s been the biggest cause of drop-off. Three or four years ago, if you bought the right car from the right brand, it was easy to get 0% or 0.9% [financing] or something close to basically free money. But with the Fed rate climbing and the business environment being what it is, all of those offers went away.”
You can no longer get low-interest loans from your bank, either.
“It’s come to a point where it doesn’t matter how much money you have or how good your credit is,” Yoon said. “If the banks won’t give it to you at that rate, you’re not going to get it at that rate.”
Dealers and Car Manufacturers Have No Incentive To Offer Low Rates
Car companies used to offer subsidized low interest rates as a way to lure in customers, but they no longer need to provide such incentives to get buyers through the door. If you do hear of low-interest car financing now, there is usually a catch.
“By and large, if you see an ad on TV or you see an ad while you’re shopping for your car that you can get 1.9% financing for X model, when you go to the dealer or manufacturer website, you learn you have to finance that car for three years instead of six,” Yoon said. “You realize, ‘Oh, I have to finance a $55,000 car in three years.’ Not many people can afford that.”
Even with reduced interest rates, shorter loan terms are still out of budget for most car shoppers.
“If you shorten your loan term by half, you double your monthly payment — and the monthly payments these days are over $700,” Yoon said. “You’re going to be looking at something close to $1,000, if not more, if you choose to try to get that better interest rate. So that’s not for everybody.”
This is also a major contributor to the decline of new car buyers getting 0% financing.
“The combination of [0% financing] offers simply not existing, and even if they do exist, being very largely unaffordable for most people, is why that number has basically gone down to effectively zero,” Yoon said.
Will 0% Financing Return?
While Yoon said it’s possible 0% financing offers will make a comeback, he predicts that this won’t be happening anytime soon.
“It’s not happening this year for sure — I feel like the Fed’s not done raising rates yet,” Yoon said.
Even if interest rates start dropping next year, this doesn’t mean financing offers will drop down to 0%.
“That’s not going to have a meaningful effect on interest rates for cars, because it’s been at 7% for over a year now,” Yoon said. “Even if they do drop [rates] by 0.5%, that’s not going to suddenly bring back 0% financing.”
Yoon believes that the only thing that would bring back subsidized interest rates is if “sales completely, utterly bottomed out.”
“And that’s not happening,” he said. “Sales are growing and inventory is improving for carmakers.”
Yoon believes that sales will remain high for the next one to two years.
“The car market was completely thrown into disarray during [the COVID-19 pandemic] — millions of people sat out the market and sat out for years. And so in order for all those people to catch up, I think we’ve still got maybe a year, a year and a half, two years of pent-up demand — which means that sales won’t bottom out,” Yoon said. “If sales won’t bottom out, manufacturers and their lending arms will have no incentives to offer any kind of subsidized interest rates.
“If that remains the case, we’ll have to wait until the Fed really, really drops rates, and I don’t know when that will happen,” Yoon continued. “Maybe we’ll get back to 5%, 4% loans a lot sooner, but I don’t know if we’ll see 0% for a while.”
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