Summer deals on cars include 0% to 3% rates, even as Fed is expected to push rates higher (2024)

After 10 rounds of rapid fire interest rate hikes by the Federal Reserve − and possibly another rate hike ahead in late July − who would even dream that car buyers could spot a 0% car loan anywhere now?

Really, in 2023? It can turn heads when the average new car loan rate was 9% for new car buyers in June − the highest average in nearly 20 years, according to data from Cox Automotive. Even an incentive that promotes some car loan rates at 1%, 2% or 3% could tempt many shoppers, too.

Frankly, my eyes got a little wider when shopping for a car in early June and the Ford sales person was eagerly pushing a 0% offer on a Ford Edge − and I was shocked to hear the salesperson say there was no cash-back rebate to select as an alternative option if you planned to pay cash or had financing elsewhere.

Who's offering 0% financing on new cars?

No doubt, 0% offers are not flooding the market. The no-interest deals remain limited and concentrated in a only a handful of brands, according to Jonathan Smoke, chief economist for Cox Automotive.

Many subsidized finance offers, such as 0%, shift at the start of each month. Deals offered in June might not be offered in July and can vary throughout the year − in some cases even by location and ZIP code − depending on factors such as competition in a category, inventory supply, and, yes, the economy.

Based on research into offers available as of late June, though, four brands had a higher share of 0% deals than the industry average, according to data from Cox Automotive's Dealertrack, which connects dealers with lenders and provides finance and insurance software for dealerships.

Those four brands, as of late June, were: Nissan, Ford, Jaguar and Hyundai. Smoke said Nissan and Ford were well ahead of everyone else with 13% and 11% shares respectively.

Looking into the models, Smoke said, Nissan has been aggressively tempting Titan buyers with 0%. Almost 60% of the loans for buyers of the Nissan full-size pickup had 0% car loans in June. And 68% of the car loans for the heavier-duty Titan HD had 0% loans. The strategy is to spark buyer interest in a brand that takes a back seat to the more popular Ford F-Series, Chevrolet Silverado and Ram trucks.

Ford's 0% offers in July were more limited. Cox Automotive data indicated that 0% was being offered in July on the 2022 F-150 – but 0% was only available to customers who ordered a 2021 F-150 and were being moved to a 2022 F-150 instead.

Other 0% offers were available on 2022 Ford models in July, with regional variances, according to Cox Automotive. The 2022 Lincoln gas-powered Corsair had a 0% financing offer in July for up to 48 months.

Ford has 0% on some 2022 model year vehicles that range from 36 months and 48 months.

A point to consider: Some 0% and ultra-low rates aren't easy to spot when researching incentives online. I sat on hold for quite some time without getting an answer to a basic question on low-rate deals at one dealership. And you're not always going to see a big sign plastered on the window promoting 0% rates at some dealerships these days.

Brands leveraging 0% offers – and low-rate offers – the most frequently often are facing a situation where the manufacturer had an above-average supply of vehicles, Smoke said. Incentive offers can be very targeted – specific to markets, counties, even ZIP codes, so it’s hard to systematically review the fine print.

Eventually, Smoke expects that 0% incentives could see an uptick as car makers see supply levels grow and normalize. The 0% offer, he said, can be used to keep demand strong and help mitigate some of the affordability challenges potential buyers face.

Much can depend on how well demand holds up, too.

Three years ago, 0% finance deals spiked at the start of the COVID-19 pandemic. The 0% finance deals accounted for 25.8% of financed purchases in April 2020, compared with 4.7% in March 2020 and 3.6% in February 2020, according to data then from Edmunds.com. At that time, the April 0% deals were the most ever recorded byEdmunds.com, which has data back to 2004.

Right now, car and truck sales are being fueled by pent-up demand. Inventories were exceptionally low for the past three years or so since the start of the pandemic-related supply chain disruptions in 2020.

But that pent-up demand could be exhausted soon, Smoke said, and incentives, such as 0% financing, are likely to continue to grow as a sales and marketing tool.

Car loan rates are likely to stay high – without incentives

Without high demand, car and truck sales could have fallen as the Federal Reserve rushed in the past year to raise interest rates to cool down inflation.

A 9% average new car loan rate on transactions at dealerships is significantly higher than the average of 6.25% a year ago. The average rate had hit a low of 5.15% in December 2021. Cox Automotive said 9% was a record in its history of data; a prior high was 8.7% in February 2021.

Car loan rates aren't expected to go much higher, Smoke said, but interest rates aren't expected to decline much either.

The average 60-month new car loan rate being marketed by banks and credit unions was 7.16% in early July, up from 4.78% a year ago, according to data from Bankrate.com. Many people pay more than average on car loan rates, especially if they have modest or lower credit scores.

The Federal Reserve meets July 25 and July 26, and market observers expect the Fed to raise rates by a quarter of a percentage point – which would be the 11th rate hike since March 2022. The Fed's target for the short-term, federal funds rate sits at a range of 5% to 5.25% currently but would move higher if the Fed boosts rates in late July.

What is considered a well-qualified buyer?

Normally, 0% offers are exclusively for "well-qualified borrowers" or those who have a prime or even super-prime credit score. Many times, Smoke, said the offer will limit for length of the loan and have other stipulations.

"A high share of new vehicle buyers likely qualify," Smoke said, "as the industry has increasingly become more dependent on high income and high credit quality consumers."

If you're a serious buyer, get preapproved for a car loan at a credit union or bank before shopping for a car. Then, you have a better idea of what rate would apply to someone with your credit score.

Check out your credit report for free to make sure that there aren't any mistakes on the report that would lead to a lower score. See AnnualCreditReport.com.

If you don't qualify for 0%, be prepared for the possibility that you might end up with something in the 7% to 9% range – or higher.

What are some other incentives?

While many car makers aren't offering 0%, they're offering low interest rate incentives for well-qualified borrowers this summer. Stellantis and General Motors, for example, were not offering 0% financing in July, according to Cox Automotive. But some had some special deals on certain vehicles.

The 2023 Chevy Traverse, for example, offered a 1.9% annual percentage rate for a 36-month car loan in early July for well-qualified buyers or buyers could choose a $1,000 cash allowance. The Chevy Trailblazer had a 1.9% rate for well-qualified buyers for 36 months but no cash allowance option listed in early July.

In July, the 2023 Ford Edge had a financing deals in metro Detroit as low as 0.9% for 36 months, 1.9% for 48 months and 2.9% for 60 months.

As part of Ford's Summer Sales event rates on 60-month financing, Ford was offering rates as low as 2.9% on the Escape, Edge and Explorer. Ford had 60-month car loans with rates as low as 3.9% on the Bronco Sport and the F-150 and F-150 Lightning, according to Ford spokesperson Said Deep.

It's often good to go to a car manufacturer's website to see current incentives if possible. Or go to a website like Kelley Blue Book and start looking at prices, deals and payments. You'll often have to enter a ZIP code. That's because some deals aren't offered in every town or area.

Also look at car loan calculators online to get a ball park on payments to see if you think you can handle the monthly payment. The paperwork I received when I looked at a Ford Edge in early June in metro Detroit showed that I would have had a $1,140 a month payment on a 36-month car loan at 0%. That assumed taking on a $41,015 loan and putting $1,500 cash down. Again, assuming one qualified.

Qualifying for a low rate, of course, is better than getting stuck with a much higher rate. Consumers also save money in the long run by opting for a shorter loan term.

On a typical $40,000 loan, consumers can save $8,500 in finance charges with a 2.9% APR car loan that's paid in 36 months or three years, according to Edmunds.com. That's compared with finance charges involving a 7.9% APR loan that stretches out over 72 month or six years.

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How does the car manufacturer make money on a 0% deal?

At 0%, the car buyer could be tempted to buy a car or SUV that has more expensive trim levels. Maybe you're more willing to buy a sunroof that you don't really need. Or if 0% is offered on a model that's likely to lose value quickly, you might be more willing to overlook that high rate of depreciation.

The dealer and manufacturer will often sell you something else, such as Gap Insurance or maybe an extended warranty. Gap Insurance covers the "gap" between what you owe on your car and its cash value after you drive it off the lot. The gap, experts say, can be thousands of dollars if your down payment was less than 20% or you financed your loan for 60 months or more. Gap stands for "guaranteed asset protection."

The 0% offer is "an incentive that is compelling to buyers and offers a great return to manufacturers and dealers," Smoke said.

Contactpersonal finance columnist Susan Tompor:stompor@freepress.com.Follow her on Twitter@tompor.