What is 0% or interest-free finance?

If a Hire Purchase or Personal Contract Purchase deal is described as 0% finance, it means you won’t pay any interest on the amount you borrow. For example, if you finance a £25,000 car with an interest-free agreement, you’ll only repay £25,000.

Check out our best 0% finance car deals to see how much carwow could help you save or read our in-depth car finance guide for more details.

What exactly is a 0% finance deal?

A 0% finance deal – also known as interest-free – is a form of personal finance where you won’t be charged interest on the amount you borrow. In the case of financing a new car, you’ll only have to pay a deposit and a series of monthly payments that add up to a pre-determined percentage of the car’s value. Both Hire Purchase (HP) or Personal Contract Purchase (PCP) agreements can be offered with 0% finance.

As with other car finance options, you should carefully consider whether you can afford these payments before you sign a contract. It’s worth considering that cash purchases will always be an alternative that may suit your individual circumstances better.

Why are some cars available with 0% finance?

Dealers usually offer 0% finance deals on cars that are about to be replaced – attractive interest-free deals will help them help clear space in their showrooms for a delivery of factory-fresh models. Alternatively, if a car’s been painted a lurid colour or has been fitted with an unpopular selection of optional extras it may also be offered with a similar interest-free deal – if you can stomach a lime green hatchback with matching leather interior you could grab yourself a bargain.

Are there any downsides to 0% finance deals?

Although a 0% finance agreement won’t require you to repay any interest, dealers might not be as keen to offer sizeable discounts to subsidise these interest-free deals. As a result, you may find other options, such as leasing, are a more affordable way of parking a brand-new car on your driveway.

Some dealers may require you to pay a larger initial deposit if you sign a 0% finance deal than if you’d picked a conventional HP or PCP agreement, too. This can occasionally be as much as 50 per cent of the car’s total value and may not suit buyers who’d rather spread the cost more evenly over their finance term.