Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Dec 20, 2011

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Zero-percent financing deals are so appealing because they promise free money. But auto seekers need to realize that this type of car loan is too good to be true, as zero-percent financing deals come with comparatively enormous monthly payments and hidden fees.


Auto dealers capitalize on these hidden fees by allowing little to no room for negotiation on any car eligible for zero-percent financing. A salesman’s response will be the equivalent of, “Take it or leave it,” since dealers know they have the power when wielding zero-percent financing over borrowers’ heads.


Most of these deals offered by auto dealers require a very short term as well. With a traditional auto loan, borrowers typically take a loan out for three to five years—sometimes even up to seven. This allows borrowers to acquire the car they want or need while keeping their auto loans down to a minimum. But with zero-percent deals, the maximum term amount is usually capped at three years; borrowers are expected to pay off their large purchase in three years or less.


Because the term lengths are so low, some of these deals require down payments as high as 25 percent.


Additionally, the credit scores required to qualify for zero-percent deals tend to be very high and limited. These strict lending guidelines paired with the non-favorable monthly payments and high deposits effectively turns these deals into more of a lure to get customers onto dealerships versus an actual financing option.


Then there’s the fine print to worry about.


California’s Attorney General’s Office warns that some zero-percent loans come with fine print that states interest rates will kick in after an allotted grace period. In some cases, borrowers may find their financing deals erased and replaced with enormous interest rates if they default on their monthly payments.


To prevent getting scammed or surprised, the Attorney General’s Office warns borrowers to:

  • Read the fine print of all auto financing contracts
  • Confirm what the interest rate will be if a default occurs or if the loan is not paid off in the allotted time period
  • Find out what kinds of charges are administered in the event default or late payments occur
  • Shop around and compare traditional auto loans with the dealer’s financing


This form of financing was summed up by Mark Dubis, an auto dealership consultant, in an AOL Autos article: “The people who are going to take advantage of zero-percent financing are the ones who don’t need it—and the ones who do need it can’t qualify.”