0% car finance explained
Zero per cent car finance could save you money on your next new car. Our guide explains how, with handy tips to help you secure a great deal.
Key takeaways
Car dealerships often use 0% finance offers as a promotion to attract new customers
Instead of paying for the car upfront, your payments are spread over time without interest
0% finance requires a good or excellent credit score for acceptance
What is 0% car finance?
A 0% car finance deal allows you to buy a car and pay for it in instalments without paying any interest. In other words, it lets you spread the cost of the vehicle over time without paying anything extra.
Interest charges are often referred to as APR (annual percentage rate) and 0% APR finance deals can be hard to come by and are often only available for a limited period.
While they might seem too good to be true, they are often advertised as a way of enticing potential new customers.
It’s also worth checking that if you are looking at a 0% APR deal, you’re not paying an inflated price for the vehicle.
How does 0% car finance work?
Zero per cent car finance deals from lenders typically work in the following way:
A car dealership will often offer 0% finance options as a promotion and a way of enticing new customers through the doors
Rather than pay for a car upfront, your payments are spread over time - 36 monthly payments, for example
The credit broker adds no interest premium to what you owe. But add-on fees and extra charges might be included that could make the 0% finance less competitive than other finance deals
1. Get a 0% finance offer deal as a new customer
2. Spread the cost of the car
3. Pay add-on fees and extra charges
Typically, 0% finance will only be offered on brand new models, not used vehicles. You’ll also generally have to have a good or excellent credit score to be accepted. These car finance deals could be offered on personal contract purchase (PCP) or hire purchase (HP).
How much will a car cost on a zero-percent deal?
This table can be used to understand the interest saving that is available via 0% finance. However, it’s important to also ensure that other factors don’t simply outweigh this benefit.
For example: additional fees, 'add-ons' and the car itself having an inflated sale price. To work out how much a car finance deal could cost you, use our car finance calculator.
| 0% finance | 9.9% APR |
|---|---|---|
Car price | £25,000 | £15,000 |
Deposit | £4,000 | £2,000 |
Total borrowing (car price minus deposit) | £21,000 | £13,000 |
Term | 36 months | 36 months |
Option to purchase fee | £10 | £10 |
Monthly repayments | £583 | £416.05 |
Total payable | £25,010 | £16,987.80 |
Cost of credit | 0 (£10 fee to purchase) | £1,987.80 |
Source: Motiv
How do you pay off a 0% car finance loan?
The most common way to pay off a 0% car finance loan is through setting up a direct debit to make sure you don’t miss a monthly payment.
You will usually be asked to pay a deposit at the start of the finance deal. And if you choose PCP car finance rather than HP, there may be an optional final payment to make if you want to keep the car.
How to spot a good 0% car finance deal
Not all 0% car finance deals have the same terms and conditions. If you’re thinking about taking out a 0% deal, here’s what to look out for:
Allowing you to choose a repayment period that suits your financial situation, whether it's a shorter term for quicker ownership or a longer term for lower monthly payments
The price of the car should not be inflated as part of the financing deal, but reflect the fair market value of the vehicle
If the deal includes mileage restrictions, they should be reasonable and align with your driving needs. Excessive mileage charges can add up
Excessive wear and tear charges can be costly when returning a leased vehicle, so understanding and agreeing to reasonable terms is crucial
The 0% deal should be backed by responsive customer support to ensure you get assistance when needed throughout the loan term
Finding positive reviews or testimonials from satisfied borrowers who have used the same financing company or dealership can be a sign of a good deal
Flexible loan length
Honest pricing
Reasonable annual mileage limits
Fair wear and tear policies
Accessible customer support
Positive reviews
What are the pros and cons of 0% car finance?
There are similar advantages and disadvantages whether you take out a 0% finance deal on HP or PCP, with an optional final payment.
Pros
0% interest to pay: Allows you to spread the cost of the deal over time without paying interest
Better car: Spreading the cost can help you afford a new car that might otherwise be beyond your budget
Flexibility: 0% deals can be available on both PCP and HP, so you can find a type of finance to suit you
Cons
Limited choice: There may be limited choice of cars, including not being able to get a used car on 0% finance
Extra fees: Add-on charges and extras might push up the overall cost, making the deal less competitive compared to other forms of finance
Inflated price: The original price of the car (principal amount) might be inflated. So any savings you’d expect from paying 0% interest are wiped out
How to get the best 0% car finance deal
Tracked down a 0% finance deal on your chosen car? That’s great news.
However, it’s vital you still do your due diligence to make sure the savings you’re expecting from not paying any interest aren’t cancelled out by other factors and hidden charges.
Things you should consider include:
Make sure the actual price of the car feels about right and do some research. If it’s a used car, then independent motor websites may be able to help you to understand whether the price is fair. But you’ll need to ensure you are comparing the same things, for example, similar age of car, mileage and specification
Some fees may apply regardless of whether the finance is 0%, but if something doesn’t look right it’s best to query it with the dealer
Dealerships may offer additional products, such as maintenance packages and insurance, at the point of sale. While these products could be useful and relevant to you always check you’re getting a fair deal by shopping around and don’t pay for add-ons you don’t need
Is the car price fair?
Are the fees reasonable?
Are there any add-ons or other additional costs?
Can I get a 0% car finance deal with bad credit?
Interest-free car finance deals are usually only available to those with a good or excellent credit rating.
If you have a less than perfect credit history (you’ve had CCJs or have missed payments on previous credit agreements), you’ll be less likely to be approved for 0% finance.
If you’re worried about being declined, ask the dealership if they can run a ‘soft search’ to check your eligibility before applying.
‘Soft searches’ (often called ‘quotation searches’) are only visible to you and will not impact your credit score.
If you have bad credit and cannot get 0% finance, there may still be finance options available. Hire purchase (HP), for instance, is usually worth considering if you’ve got a less-than-perfect credit history.
Can I get a 0% deal on a used car?
You might be able to find 0% deals on a second-hand car, but they’re a lot less common than 0% finance on new cars.
Dealerships tend to offer 0% deals as a way to entice people to buy new cars in the same way you might see them offer cash discounts, free insurance or other eye-catching extras.
If you’re looking to buy a used car, our guide to buying a used car with finance should help.
Other useful guides
We have a range of helpful guides if you're thinking about car finance:
