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Advertised Auto APRs, Risk-Based Pricing, and Loan-Shopping Inquiries

This guide presents selected U.S. government consumer education from CFPB. References to “we” or “us” in the source material refer to the issuing agency. Source dates and links appear below.

How do I qualify for an advertised 0% auto financing?

In general, only consumers with the highest credit scores qualify for 0% financing offers. If you qualify, be aware these offers may have other requirements, such as paying it back quickly.

Dealers and manufacturers may offer special incentives on certain vehicles when there's a large inventory they need to sell. These incentives may include 0% APR auto loans and manufacturer cash rebates.

What steps should I take to qualify for 0% APR financing?

Before seeking financing of any kind, it’s a good idea to check your credit reports. These deals are generally for consumers with high credit scores. Your credit score will impact what interest rates a lender will offer you. Before you shop, check your credit report for errors. If you find any, dispute the information to have it corrected.

Learn how to check and compare interest rates

What details might my financing offer contain?

These financing deals often require you to pay back the loan in a relatively short period of time, such as 36 months. It’s a good idea to read and make sure you understand the fine print.

In general, a shorter loan duration means you’ll pay less interest over the life of the loan. But it also means that you may have a higher monthly payment.

Figure out how much you can afford

Know before you shop for a car or auto loan

By asking questions before you shop, you’re more likely to get the best interest rates and loan terms for your budget. You’ll save time, money, and reduce stress.

Start by asking yourself these questions

How does a lender decide what interest rate to offer me on an auto loan?

An auto lender considers several factors – including your credit score, your credit history, income, debts, and down payment – when deciding what interest rate to offer you.

Auto lenders will generally consider a number of factors when they’re determining the interest rate and loan terms to offer you. Keep in mind that they’re not required to offer you the best rates. To get the best deal, it’s important to shop around and compare offers from different lenders, including banks and credit unions.

Factors used to determine auto loan interest rates

Lenders generally use these factors to determine what interest rate they’ll offer you:

Learn how much you can afford

How to get the best interest rates

Before you begin shopping for a car or visit an auto dealer, it’s helpful to:

Check your credit

Review your credit reports before you shop for a car or apply for a loan. You can review your credit reports for free from nationwide credit reporting companies including, Experian, TransUnion, and Equifax. If you find any errors or inaccuracies dispute this information to see if it can be removed.

Get prequalified or preapproved

Second, get prequalified or preapproved for an auto loan from a bank, credit union, or other lender. Again, shopping around and comparing offers can help ensure you’re getting the best deal.

Getting quotes from multiple lenders generally won’t impact your credit score. If you have multiple lenders checking your credit, it’s a good idea to keep your shopping within 14 to 45 days. This way, these credit checks count as only one credit inquiry.

You may not get the best deal by getting financing directly through a dealer. If you go this route, they will reach out to several lenders on your behalf and offer you one of those loan offers. Dealers profit when they offer higher interest rates than they receive from the lender. You can save a lot of money by comparing loan offers and negotiating for the best interest rate available to you. Negotiating can be as simple as asking the dealer if you qualify for a loan with better terms.

See different ways to get an auto loan

You have several options to consider when buying a new car or getting an auto loan. Learn how they can affect your overall money picture.

Read more about the ways to finance your loan

What is risk-based pricing?

Risk-based pricing is when a lender offers you less favorable loan terms, such as a higher interest rate. The lender decides this based on information in your credit report or application.

Lenders often charge higher interest rates to people they consider to be higher risk borrowers. This may be the case for those who have recently declared bankruptcy, lost a job, or are several payments behind on their mortgage.

Each lender uses its own process to determine the interest rate and loan terms they offer you. This is largely based on your credit score, employment status, income, outstanding debts, and other factors.

If a lender relied on a credit report to make a less-favorable lending decision about you, you should get a risk-based pricing notice. This notice tells you you’re receiving less favorable terms than other borrowers because of negative information on your credit report. It’s always a good idea to check your credit reports before you shop in order to spot errors or inaccuracies that impact your credit scores.

Lenders cannot use certain legally prohibited factors, such as your race, gender or age, when deciding whether to give you a loan or how much to charge you. If you believe a lender is violating your rights, you can submit a complaint with the CFPB.

See different ways to get an auto loan

You have several options to consider when buying a new car or getting an auto loan. Learn how they can affect your overall money picture.

Read more about the ways to finance your loan

How will shopping for an auto loan affect my credit?

Shopping for the best deal on an auto loan will generally have little to no impact on your credit score(s). The benefit of shopping will far outweigh any impact on your credit.

In some cases, applying for multiple loans over a long period of time can impact your credit score(s). Lenders can make requests, also known as inquiries, to access your credit files from the consumer credit reporting companies. These requests will generally only count as a single inquiry if they’re made within 14 to 45 days of each other. Shopping for two different types of loans, such as a mortgage loan and an auto loan, will count as two separate credit inquiries.

To get the best deal and minimize any negative impact on your credit:

Know before you shop for a car or auto loan

By asking questions before you shop, you’re more likely to get the best interest rates and loan terms for your budget. Plus, you’ll save time, money, and reduce stress.

Ask more essential questions before you shop for auto loans

Sources and publication details

The federal agency source text is U.S. government work in the public domain. Fynoptic selected, adapted, and formatted it for this guide. No agency endorsement is implied. Follow the linked sources for current program details and the rules applicable to your circumstances.

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