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The Truth About 0% APR Car Deals and Dealer Rebates

Oct 01, 2021
Father and child walking towards water with new car in background.

When someone feels the need to replace an aging vehicle, the number of advertisements luring them to car dealerships can be overwhelming. Among the tried-and-true methods car dealerships employ are 0 APR (Annual Percentage Rate) car deals. On the surface, such bargains imply that buyers will save money on interest and fees, but the fine print sometimes proves otherwise. By comparing 0 APR car deals to the upfront savings associated with manufacturer rebates, you can make informed decisions about purchasing a vehicle.

What are 0% APR Car Deals?

People routinely see a barrage of so-called 0 APR car deals that entice them to act quickly. The basic idea behind such strategies is to motivate potential automobile buyers to take advantage of a seemingly good deal. It’s crucial to understand how 0 APR car deals work, who qualifies, and whether agreeing to one represents a good use of your financial resources.

Lending institutions rely on charging interest. Without that steady revenue, these institutions would not be able to lend out money to the community or function as a healthy, balanced business. When you purchase a vehicle with 0 percent interest, it typically means that monthly payments are applied entirely to the principal outstanding balance of the loan. In effect, the 0 percent offer seems to represent “money for nothing.” If you’re thinking there must be a catch, you may be right.

Car dealerships use 0 APR deals to sell more vehicles and compete with others in their industry. But many of these seemingly attractive offers have a catch that may make taking discounts such as rebates a more reliable way to save money. For instance, the vast majority of 0 APR car deals only offer a set period at no interest.

car dealership reviewing 0 apr deal and rebate offer

These may range from 12 months or longer and the notion of savings prompts buyers to act without considering long-term implications. It’s not uncommon for borrowers to see the loan swell with fees and interest after the 0 APR monthly installments have ended. In some cases, the only way to avoid interest mounting up is to fully pay off the loan before the grace period expires. Other issues that make 0 APR car deals less useful generally involve the following:

  • Credit Scores: Many 0 APR car deals require exceptionally high credit scores. Some car dealerships may require a rating of 740 or higher to qualify. Not everyone has such a high score.
  • Vehicle Limitations: Car dealerships typically only offer 0 APR on the vehicles they want to move off their lot. These may include cars, trucks, and SUVs with end-of-year discounts. It’s also not unusual for the promotion to exclude popular vehicles dealers sell easily. The vehicle you want may not be available for 0 APR.
  • Loan Length: When you apply for a car loan to purchase a new car, the monthly payment often needs to fit neatly into their monthly budget. Unfortunately, 0 APR car deals tend to have shorter terms and higher monthly installments.

    Another disappointing aspect of these deals is that more than a few people suffer buyer’s remorse afterward. The uncomfortably high monthly payments coupled with driving a vehicle they may not necessarily be in love with, may prove disappointing in many cases. That’s why many buyers choose to take upfront rebates and a car loan from Peach State over 0 APR car deals.

What are Dealer Rebates?

One of the factors that distinguish rebates from 0 APR deals is they originate from the automobile maker. The underlying marketing strategy involves increasing car sales through a fundamental discounting system. Beyond increased monthly and annual sales, manufacturers sometimes believe rebates on select vehicles improve brand loyalty. Whether those motivations pan out over the long run or not, the benefit to consumers remains substantial.

Car buyers enjoy savings of sometimes thousands of dollars for making no additional effort or agreement on their part. Some consumers apply the rebate to the down payment or sale price and secure a low-interest loan from Peach State. Bringing the manufacturer-driven discount together with manageable loan products typically allows buyers to maximize their monthly budgets.

The benefits of taking the rebate route may prove rewarding in terms of the following:

  • Flexible Credit: Automobile buyers usually secure a car loan in conjunction with the rebate offered at car dealerships. Those without the high credit scores that qualify them for 0 APR car deals inadvertently benefit. Taking the rebate and working with a local lender on a manageable car loan sidesteps the pitfalls of interest and fees that come due later. Rebates are not necessarily linked to credit scores. They are often applicable to anyone who qualifies for a car loan.
  • Types of Rebates: Automobile manufacturers are engaged in worldwide competition over brand loyalty. Second-time buyers may be able to access brand loyalty rebates. Military personnel are routinely thanked for their service with community and corporate discounts. Carmakers are keenly aware of the sacrifices military families make and often practice this policy. Other potential beneficiaries of niche auto rebates include educators, senior citizens, and recent college graduates.

    What may be critical for eager car buyers to keep in mind is that sometimes the money you save through participating in rebate programs may not be done in connection with 0 APR car deals. That’s not necessarily a bad thing given 0-percent deals limit access to popular vehicles, increase monthly payments, or upend monthly budgets when fees and interest come due.

cell phone calculating if 0 apr deals or rebates are better

When Is 0% APR Car Financing a Good Idea?

Leveraging 0% APR car deals is not always a bad idea. People with pristine credit scores and the ability to pay off a shorter-term loan before fees and interest kick in may save money. Be sure to do the math on potential savings against manufacturer rebates offered by car dealerships as well. Well-positioned buyers who like the make and model options may find this a good resource.

However, some buyers with limited resources may find increased financial and vehicle flexibility by tapping into rebates. These upfront savings also allow you to work with a local lender that you know and trust to select the best car loan product possible.

There are multiple factors to examine when considering a 0% APR auto loan. The following comparison shows how a rebate can be more beneficial than a 0% APR:

$30,000 Auto Loan $25,000 Auto Loan ($5,000 rebate)
0% Interest 1.99% Interest
60 Months 60 Months
Monthly Payment: $500 Monthly Payment: $438
Total Payments: $30,000 Total Payments: $26,285


couple negotiating price in car dealership

When Are Dealer Rebates a Good Idea?

Car dealership rebates are widely considered an excellent way to save money upfront and interest accumulations over the life of a car loan. The short- and long-term savings of taking the rebate usually outweigh the marketing campaign that leads unsuspecting buyers to believe they are getting a better deal.

Should You Take 0% APR Car Financing or Dealer Rebates?

Unless you are in the market for a vehicle that falls within the car dealership promotion and possesses enough cash on hand to pay off the 0% APR deal relatively quickly, rebates typically make better sense.

If you are interested in purchasing a new or certified pre-owned vehicle, use our Dealer Financing vs. Credit Union Financing Calculator or contact Peach State to determine if leveraging rebates and applying for an affordable car loan is the best choice for you and your budget.

If you would like more money-saving tips similar to those found in our 0 apr car deals blog, review our Car Loans 101: Car Buying Made Easy Guide.

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