Interest-free finance deals
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 borrow to pay for a car, but there is no interest – often referred to as the APR (annual percentage rate) – to pay.
This means you can spread the cost over time without paying extra in total.
How does 0% car finance work?
A car dealership will often offer 0% finance 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.
No interest is added 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
Typically, it’ll only be offered on brand new models, not used vehicles.And you’ll also generally have to have a good or excellent credit rating to be accepted.
0% car finance deals could be offered on personal contract purchase (PCP) or hire purchase (HP)
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.
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?
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 are usually 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 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.
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.