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0% car finance explained

Interest-free finance deals

Tim Heming
Written by  Tim Heming
Jonathan Leggett
Reviewed by  Jonathan Leggett
5 min read
Updated: 20 Sep 2023

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.

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 is 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.

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How does 0% car finance work?

Zero per cent car finance deals from lenders typically work in the following way:

  1. A car dealership will often offer 0% finance as a promotion and a way of enticing new customers through the doors

  2. Rather than pay for a car upfront, your payments are spread over time - 36 monthly payments, for example

  3. The credit broker adds no interest 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

  4. Typically, it’ll 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

  5. 0% car finance deals could be offered on personal contract purchase (PCP) or hire purchase (HP)

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.

Can I get a 0% deal on a used car? 

You might be able to find 0% deals on a used 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.

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

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 score.

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.

How much will a car cost on a zero-percent deal?

 

0% finance 

 7.9% 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

£405

Total payable

£25,010

£16,595

Cost of credit 

0 (£10 fee to purchase)

£1,595

Source: Motiv. The 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.

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

  • Flexible loan length: 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

  • Honest pricing: The price of the car should not be inflated as part of the financing deal, but reflect the fair market value of the vehicle

  • No hidden fees: Any administration charges should be upfront so you understand what you are paying at the beginning and end of the 0% finance deal

  • Reasonable annual mileage limits: If the deal includes mileage restrictions, they should be reasonable and align with your driving needs. Excessive mileage charges can add up

  • Fair wear and tear policies: Excessive wear and tear charges can be costly when returning a leased vehicle, so understanding and agreeing to reasonable terms is crucial

  • Accessible customer support: The 0% deal should be backed by responsive customer support to ensure you get assistance when needed throughout the loan term

  • Positive reviews: 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

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…

  • Is the car price fair? 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

  • Check the fees: 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

  • Check for any add-ons: 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

Other useful guides   

We have a range of helpful guides if you're thinking about car finance:

Compare car finance deals with MoneySuperMarket

You can compare car finance deals with our partner Motiv. Motiv doesn’t offer 0% finance, but its online service enables you to see if you’re eligible for HP and PCP deals and the rates you’ll pay. 

It only takes a few minutes to enter your details and compare offers, it’s free and searching for a deal won’t harm your credit score. 

Compare with our partner MOTIV
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