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25 Feb 2019
Adam Jolley Adam Jolley

What is 0% car finance?

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If a car finance deal is advertised as 0%, it means you won’t pay interest on the amount you borrow. Sound good? Here are a few things to be aware of first.

Car dealer holding car keys

What does 0% finance mean?

Finance deals advertised as being 0% APR - or interest free - mean you won’t be charged interest on the amount you borrow.

With a 0% deal, you’ll only have to pay a deposit, followed by a series of monthly payments.

In the context of car finance, both Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements can be offered with 0% finance.

Read more: Your car finance options explained

How do I qualify for 0% car finance?

To get most 0% car finance deals, you’ll usually have to have a good credit profile.

You can read our tips on boosting your credit profile here.

In addition, getting the 0% rate often requires you to put down a large deposit first.

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What makes 0% finance different?

The main difference with 0% APR car finance is that you’re not charged any interest on your borrowing. 

APR stands for annual percentage rate. When you borrow money, the APR is the amount of interest that’s added to the total amount owed, plus any other associated fees. 

Not being charged interest is obviously very appealing as you could save hundreds of pounds over the course of a typical car finance agreement. 

You can read more about interest rates, including the difference between representative APR and exact APR, in our guide.

White car on money

What cars offer 0% car finance?

Another main point of difference is that 0% APR car finance tends only to be available on new cars.

This is because dealers typically offer 0% finance deals on cars that are close to being replaced as it helps them to make space in their showrooms for new deliveries. 

In addition, 0% deals are commonly offered on cars that have been painted garish colours, or fitted with unpopular extras. 

So if you’re not too fussy in this respect, you could grab yourself a 0% deal. After all, when you’re driving the car, you’re not the one who has to look at that mustard-yellow paint job!

Read more: How to get car finance with bad credit

0% finance deals: Pros & cons

Is 0% car finance a good idea? This really depends on a number of factors, and your own personal circumstances. 

To help you decide if a 0% car finance deal could be right for you, here’s a look at a few pros and cons.

Pros 

  • The main advantage of a 0% deal is that you’ll save money on interest payments. Take the following example: You borrow £10,000 for a car with a personal loan at 3% APR over a period of three years (36 monthly payments). The lender will work out the 3% rate added in years one, two and three. Over three years, you’ll make monthly payments of £290.81. This will add up to £10,000 for the loan and £469.24 in interest and other charges. With a 0% deal, you’d only pay back the £10k.

  • If you’re not fussy on things such as the car’s colour, you could grab a great deal.

Cons

  • You have to have a good credit profile to get most 0% deals. This means many people won’t qualify.

  • To secure a 0% deal a larger deposit is often required – as much as 40% in some cases – whereas with other finance deals a deposit of 10% is more typical.

  • 0% APR car finance is generally available on cars that may struggle to otherwise sell, such as those painted unpopular colours.

How to get the best 0% car finance deal

If you’ve seen a 0% car finance deal advertised at a dealership it pays to do your research, and watch out for the odd trick.

For example, to make up for the lack of interest payments, some dealers or sellers may add the interest you would have paid on to the sales price instead.

To guard against this, you’d do well to check out the vehicle’s purchase price elsewhere to ensure it compares favourably.

It’s also worth noting that if your main requirement is simply driving a new car, you may want to look at other finance options too, such as leasing, as this may work out as more affordable.

Read more: Car finance calculator: Check your monthly repayments

How can I save on car finance?

If you’re looking for a car finance deal, you can compare a range of options at Confused.com.

We don’t offer 0% deals – this guide is for information purposes only - but we do offer a whole host of finance types including PCP, HP, and personal loans.

What’s more, although 0% deals tend to only be available on new cars, the used car industry is very competitive, meaning you could get a low-interest deal on a used car instead.

Before taking out car finance, you need to take into account how much you’re spending, how much you can afford to pay back each month and how good your credit history is.

The great way to compare deals is to look at the total cost of credit as this will take into account the monthly payments, and how long you’ll end up paying back the loan for.

One thing to be careful of when comparing finance deals is that, while extending the period of a loan may bring down the cost of monthly payments, it could also mean you’ll pay more interest overall.

And finally, as with any finance agreement, always read the terms and conditions carefully before signing up.

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