What is 0% car finance?

If a car finance deal is advertised as 0%, it means you don’t pay interest on the loan you take out to buy the car. Sounds good? Here are a few things to be aware of first.

hand dangling car keys by red car in car showroom

 

What is 0% car finance?

A 0% car finance deal means you don't pay any interest on the amount you borrow to buy the car.

With a 0% deal you normally have to pay a deposit and a series of monthly repayments. The total of these payments add up to the full cost of the car.

There's no interest added to the loan. But there might be other fees and charges added to the cost of the car.

Both Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements can be offered with 0% finance.

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

Looking for finance on a new car?

 

How do I qualify for 0% car finance?

As with any loan, the better your credit rating, the more chance you have of getting a good deal on interest-free car finance.

If you're not sure whether you have a good credit rating you can read our tips on boosting your credit profile.

You might also find that getting a 0% interest rate often requires you to put down a larger deposit.

 

What makes 0% car 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. There might also be some other fees included.

Not being charged interest saves hundreds of pounds over the course of a typical car finance agreement.

For more information about interest rates, take a look at our guide on the difference between representative APR and exact APR.

 

What car dealers are offering 0% car finance?

0% APR car finance historically has been mostly available on new cars.

Dealers historically offered 0% finance deals on cars that were close to being replaced as it helped them to make space in their showrooms for new deliveries.

Also, 0% deals were sometimes applied to cars that had been painted garish colours or fitted with unpopular extras.

But in recent years many car dealers started offering 0% car finance deals as a way to attract customers.

 

Can I get a 0% finance on a used car?

More used car dealers are now offering 0% car finance on used cars.

As the price of used cars has risen in recent times, the range of finance options has also increased.

The cars available may be previously financed vehicles that have been traded-in. They tend to be newer and have lower mileage.

The same rules apply though - you still need an excellent credit rating to qualify for a 0% finance deal.

 

What are the pros and cons of 0% car finance?

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

Pros

  • The main advantage of a 0% deal is that you save money on interest payments. With the price of a new car often being £20,000+, this could save you thousands in interest.
  • 0% deals are now available on new and used cars, and on both PCP and HP finance deals, giving you plenty of options
  • With no interest to pay, your budget might allow you to get a better car

Cons

  • You need a good credit rating to get the best 0% deals
  • You normally need a larger deposit compared to other types of finance deal
  • Not all cars are available with 0% finance
  • The sale price of the car might be higher to start with, and watch out for add-ons and extra charges
  • Your monthly payments will likely be higher
 

How to get the best 0% car finance deal

As with any other loan or financial product, make sure you really need it, and that you understand what you're signing up to.

Read all the small print. Check any mileage limits. And use our car finance calculator to work out if the 0% finance deal really is the best way to buy the car.

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

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.

If your main requirement is simply driving a new car, you may want to look at other finance options too, such as car leasing. This may work out as more affordable for you.

 

What are the alternatives to 0% car finance?

0% car finance deals tend to be limited in length - if you want lower repayments over a longer period of time, then you might not get a 0% deal.

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

An obvious alternative to 0% car finance is be car leasing. Because you're not buying the car you aren't paying interest. Personal Contract Hire (PCH) might also be an option if you don't have a strong credit profile.

 

How can I save on car finance?

Before applying for 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. This takes into account your monthly payments, and how long you’ll end up paying back the loan for.

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