Guide 0% car finance explained

0% car finance deals are interest-free loans.

As you don’t pay any interest on your monthly payments, your money goes directly to paying off the car and you normally end up paying as much as a cash-buyer, just not in one go.

0% finance deals aren’t all that common, and of the few interest-free deals there are, many are only offered for a limited period. That means finding them in among all the other hundreds of finance deals can be quite tricky.

0% car finance deals are similar to many other finance deals: you spread your payments over an extended period of time to make buying a new car more affordable. The difference is that you don’t pay any interest on it.

0% car finance is normally offered by the manufacturers or dealers themselves. They’ll earn the same amount as they would selling the car, just over a longer period.

Some people think there’s a catch to 0% car finance, as you’re essentially borrowing money without having to pay a fee to do so. It’s not a scam, but the deals are rare and hard to secure.

Ultimately, whether 0% car finance deals are good or not will depend on your individual circumstances and budget.
If you can already afford a new car outright, you might benefit more from bonus cash incentives or freebies, as price negotiations can be a bit more difficult as interest has already been deducted.

But, if you are looking at buying a car on finance and can afford the monthly payments, then it can be a handsome and affordable option.

With any financial arrangement, you should take the time to fully understand what’s involved; read the terms and conditions thoroughly and, if you’re unsure about anything at all, seek professional and impartial advice from sites like the Money Advice Service and Citizen’s Advice.

Don’t jump in because it’s for a limited time or in front of you today, there’s lots of great deals on the market.

To qualify for a 0% car finance deal, you’ll need a strong credit profile. Interest-free loans are a high risk offer for lenders, so they’ll only approve you if they’re confident you can pay every month.

Before committing, give yourself time to assess the deal. Can you afford the repayments each month? Are you happy to finance a car or would you rather own it outright?

Also make sure you fully understand the terms and conditions of the offer before you sign anything, including what happens if you miss a payment.

If you don’t qualify for 0% with a dealer, then check other car finance deals available.

Some 0% car finance deals can have limitations, so it’s worth investigating properly.

0% car finance deals are normally shorter than other deals, so you’ll likely face higher monthly repayments to pay the car off more quickly. Longer contracts aren’t necessarily better though, as you could end up making monthly payments on the same car for anything up to six years.

Scrutinise your own budgets to find a comfortable medium that works for you. If that’s not available with 0% finance, try another deal.

With 0% car finance, you may also need a larger deposit than you would with other finance deals. If you get the option to make a smaller deposit, remember you could end up owing more than the car is worth after a couple of years. You may also have to pay more insurance, particularly gap insurance, as a result.

Another thing to keep an eye out for are contractual clauses, such as 0% interest only being available for a portion of the loan term. Additional fees may be included in some deals so do check before committing to a higher interest rate.

This isn’t to put you off, 0% finance can be excellent and affordable deals. You just need to know the ins and outs before you commit. Each case is different and, as with any deal, you’ll need to check to make sure the deal and car are right for you.

Yes, 0% finance deals are typically available on brand new cars.

Manufacturers like to entice buyers away from rivals with free insurance deals, free extras or cash discounts; 0% finance is another way of doing so.

As 0% finance deals are often only available for a limited time, people can sometimes feel rushed into deciding. As with any finance deal, it pays to do your research properly.

• Make sure you read the terms and conditions properly. Check whether the 0% interest rate is a fixed rate for the duration of the contract or an introductory offer that could change after a few months.

• Make sure you can keep up with the monthly payments. Shorter loans normally result in higher monthly payments, and you may face additional costs or fines for missed payments.

• Compare the car’s price and see how much it sells for elsewhere. In some instances, the dealer may add the interest to the price of the car to make their money back.

• Check your contract for any additional or unexpected costs.

• Compare the overall cost of your 0% finance deal with other deals on the market. You may find a low interest rate deal, with a lower deposit and smaller monthly repayments more suited to your budget.

• Don’t give up. You may not be accepted for a 0% finance deal, but you may be offered another deal. Just make sure the deal you end up with suits your budget and your lifestyle.

You can find on car finance & monthly price deals on Auto Trader. Search by popular brands, and find the latest deals from dealers and private sellers near you.

Not sure if you're eligible for 0% car finance deals? No worries, you can use our finance calculator to work out how much you can afford and then find the deal best suited to your budget.