What is 0% finance?

As more and more car buyers take out finance to pay for their new cars, so manufacturers adjust their credit deals to entice more custom. But are the most attractive 0% finance deals worth it? Let’s find out.

Check out our best 0% finance car deals to see how much carwow could help you save.

What exactly is a 0% deal?

It’s often the case in life that if something seems too good to be true, it usually is. That’s why people can often be wary of interest-free credit. After all, why would anybody lend you money for nothing in this day and age? The good news is that on the whole, 0% deals are plain and simple and exactly as they seem.

You simply borrow an amount of money and repay just what you have borrowed without any interest payments or fees. However, before you sign on the dotted line, there are a couple of things you should consider first.

Why are some cars available with 0% finance?

Ask yourself this: why is interest free credit being offered on this car? Is the model you are looking at about to be replaced by an all-new one, is the finance deal only available on the old model or certain specifications, or is it an unpopular model and if so, why?

Usually it’s only available on models that have been on the market for several years and are about to be replaced or updated – or just cars that aren’t big sellers in the first place.

Free money, or is it?

It’s worth knowing that somebody somewhere is making a profit out of lending you the money. There may be no interest and no fees on the agreement, but that simply means that the cost of lending you that cash to buy the car is being paid by someone else; either the supplying dealer, the manufacturer or both.

Why should I care if I’m not paying?

You may be getting the loan with no interest on it, but chances are you will be paying for it in another way.

If it’s a used car deal for example, it’s unlikely that the price of the car won’t be as competitive as similar models elsewhere that are not being offered with 0% finance. That’s because the dealer will be subsidising the agreement and that means it is coming out of the profit in the car.

With new cars it’s different because we all already know what they cost, so that means the interest is likely to have been taken care of by a combination of contributions from the manufacturer and the dealer.

This means that the dealer is unlikely to be able to offer the kind of discounts that may be available if 0% wasn’t available on that model.

Sometimes, the bigger discounts are available, but in order to get the 0% finance you will have to cough up a big deposit – usually between 30 and 50% of the car’s value (usually on hire purchase deals). So even though you’re taking out finance you’ll need a good chunk of cash to get the 0% rate.

Is there a downside to interest-free credit?

Don’t expect to be able to negotiate as good a deal on a new car if 0% interest is being offered on it as you would do under normal circumstances.

Even if you don’t want the finance, the dealers know that the majority of buyers will take it and therefore they have to allow for subsidising it on all of those models, meaning lower discounts. Also, remember what we said about 0% finance generally only being offered on older models or less desirable cars – but don’t let interest-free credit put you off a car if it’s the right one for you.

In a nutshell…

On the face of things, 0% finance is a good deal. After all, nobody likes paying interest on the money they borrow so what’s not to like about the words ‘interest-free?’

The only thing you need to keep in mind is that the interest is being paid in some way by someone. Most of the time you will be paying for it through a higher purchase price than you may have got if the deal wasn’t on. However, some 0% new cars deals are wholly subsidised by the manufacturer and don’t have a contribution made from the dealer.

In those cases, free credit is a fantastic deal and you really should snap their hands off when it’s offered.

Become a finance mastermind

We’ve produced easy-to-understand guides to Hire Purchase (HP) and Personal Contract Purchase (PCP) finance, as well as car leasing. Take a look and let us know if there’s anything you don’t understand.

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