My local car dealer just offered me a zero-interest loan for a $40K SUV — there must be a catch, right? Here's what's happening in America's new car market

Why so many incentives?

Aggressive offers are flooding the market because people aren’t buying vehicles at the same rate they were before the pandemic, and car makers don’t want to hold on to their inventory.

Car sales reached their lowest point in American history in 2021 and only made a post-pandemic rebound in 2023, as demonstrated by data from the National Automobile Dealers Association.

As of July, automakers were sitting on nearly 3 million unsold cars in the U.S., creating a buyer’s market, Kelley Blue Book’s report explained.

The KBB report pointed to high inventory levels and higher incentives as factors that helped tip the U.S. auto market in buyers’ favor. But sales remain below “their potential” amid high loan rates and tight credit conditions.

Infiniti, Volkswagen, Audi, and Nissan offered the biggest discounts, while the lowest offers came from brands like ​​Chrysler, Dodge, Jeep, and Ram, according to the report.

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The zero-interest incentive

Incentives come in many colors, and a 0% Annual Percentage Rate (APR) is among the flashier offers on the market. An APR includes the interest rate — the basic cost of borrowing the money required to purchase a vehicle — plus any fees that come with the loan.

Generally, you'll only get access to this perk through an auto manufacturer's own financing arm, assuming you have an excellent credit score, of course.

Banks and credit unions typically won't offer 0% APRs, even if you’re one of their most loyal customers. As Auto Trader reports, generally, you’ll only get access to this perk through an auto manufacturer’s own financing arm. (Assuming you have an excellent credit score, of course.) Kelley Blue Book suggests you’ll need a score somewhere between 781 to 850 to unlock this special deal. You’ll need to have a low debt-to-income ratio, a stable income and a large down payment ready and waiting.

The typical length of a 0% APR is 36 to 48 months, which is shorter than the average length of 68.5 months for new cars in 2024.

And usually, 0% APR incentives are often only available for vehicles that aren’t selling very well right now, and are mostly just for new models.

What’s the catch?

Zero-interest loans may sound like a steal of a deal, but you may still want to hold out for a better offer.

For one thing, Kelley Blue Book says the low- or no-rate deal is often only for surplus cars that companies want to offload because demand isn’t meeting their supply.

Furthermore, manufacturers don’t usually offer 0% APRs for base models, meaning you’ll have to pay extra for features that would normally come with the standard price.

But maybe most importantly: especially if you’re looking at buying multiple vehicles, you may be able to work out a better deal with a lender. Kelley Blue Book says cash back incentives in particular can be attractive for buyers. That’s because they reduce the overall cost of the vehicle, which means the buyer ends up financing a lower loan amount.

Manufacturer rebates do come with a number of downsides, however. Some carmakers may require you to already have purchased or leased a vehicle from them in the past to qualify for this type of rebate, according to LaFayette Credit Union.

Like 0% APRs, these rebates are restricted to paying through a manufacturer finance company.

If a car buyer has poor credit, the interest rate on the loan may end up being particularly high.

And while there are manufacturer rebates to be found, they do come with their own downsides as well. Especially if your credit is anything less than stellar.

Finally, if neither of those options are available, you could explore your state tax rebate options. Especially when it comes to electric vehicles (EVs), on top of the $7,500 federal tax credit, depending on where you live, you could be eligible for additional rebates and incentives.

Finding the right incentive for you depends on everything from your personal finance situation to your lifestyle. If you’re weighing your options, online car loan calculators help you see what offers are open to you.

Regardless, don’t simply run for the first offer you find. Just like buses, another, better offer is surely just around the corner.