What does 0% financing mean?

100% financing means the whole cost of the car is loaned to you, you don’t need to put any money down. Those loans can come with onerous interest rates if you are at all late with a payment.

0% financing means they will not charge any interest for a period of time (usually one year). After that, you pay interest on the loan until it is paid off. Sometimes, when they start charging you interest, the interest has been accrued over the time of the “interest free period”

For instance, you buy a car for $20,000, paying $5,000 down and borrowing $15,000. If you pay the $15,000 over the course of the one year interest free period, you are done and never paid any interest.

However, if after a year you still owe 10,000, they start charging interest on the 10,000 balance, plus they may have the interest compounded from the start of the loan, so you get charged a year’s interest on that 10,000.

Just to add to what @zenvelo says, it’s an advertising ploy to get you in the door. You’re better off negotiating for the best price you can get. Then, after you have negotiated that, insist on the 0% financing. Then pay it off in full before the interest rate goes up because your car value drops the millisecond you drive it off the lot and you don’t want to pay more than you have to.

The two terms seem to refer to different things. Can you have both 100% financing and 0% financing? You would get a loan for the full price of the car and not pay any interest for a year.

@LostInParadise some places will do that, I have seen it for some furniture stores, but I have never seen it for a car dealership.

But if you don’t pay interest for a year, is it because the interest after a year would be higher than if you were paying interest from the get go?

@flo No, you are paying 100% to the principal balance for that year of 0%. After that, if you havent paid it all off, you have to pay more because now they add -_% interest.

Credit card offers mess people up bad because they dont pay it off in time.

Example. Best Buy has 0% for a year on washer, dryer sets. I spend 1200 on my store card. If i pay 100 each month, its paid off and they make no money off my card purchase.
If i still owe 600, because financial distress, they charge me an additional 20 bucks in interest fees.

You can often get both if your credit rating is high. !00% financing could mean higher interest – not good. 0% means if you pay the entire balance before the end of the term, it will cost you 0 interest. You are not usually offered both.

Interesting this should pop up, as I am in the market for a new Honda, and they are offering 0% financing up to 48 months for 2021 models; 60 months if you buy a new but old inventory 2020 model. Have to buy before next Monday.

@zenvelo If the 2020 has the features you want – that would be the best deal. We held out for a 2021 (Chrysler Pacifica) because the upgraded safety features were $extra on the 2020 new car, standard on the 2021. We are also demanding the President’s Day financing for a car that hasn’t even been delivered yet.