0% car finance, sometimes referred to as a 0% APR deal, is a type of car finance product where you are not charged any interest as part of the finance package. This type of car finance product is normally only available to those with a very strong credit score.
The majority of car finance products involve the customer paying interest on the amount they borrow to finance the car. This can be a Fixed Rate or Variable Rate and is set at a percentage based upon your credit score and financial circumstances. A 0% car finance deal does not charge any interest on the finance package. So the amount you borrow to fund the purchase of your car does not increase across the term of the agreement.
The biggest advantage of a 0 car finance deal is that you do not pay any interest on the amount you borrow. That means you know exactly how much you will have to pay back, normally the total cost of the car plus any fees the finance provider charges.
The downside of a 0% finance deal is that the finance provider or car dealer may have factored the interest payments into the price of the car, meaning you will end up paying more for a car than it is actually worth.
0% car finance deals are open to those with a very clean credit score, and normally require a deposit – which can be up to 40% of the car’s price. The terms and conditions on a 0% APR deal are also likely to be very strict.
Another potential disadvantage is that the 0% car finance package may just be an introductory offer. If you have to extend the finance period, the rate of interest may be a lot higher than if you had taken out a car finance package that had a fixed or variable interest rate.
There is also a risk that the dealer or finance provider may be using the 0% finance deal advertised to attract your attention. Then, because of the high requirements of a 0% APR deal, if the funding is not approved, they may try to persuade you to take a finance package that is not as favourable to your circumstances, using your position in the car buying process to pressure you into agreeing to the deal.
In many ways, a 0% car finance deal is similar to a Zero Deposit package. While it may seem attractive at first, you may end up spending more money in other areas.
By choosing a product such as Personal Contract Purchase, Hire Purchase, or Lease Purchase, it will be made clear to you exactly what you will be paying across the agreement, and the requirements to be eligible for one of these products is a lot less strict. Choosing the right finance provider can make the difference between getting a deal that looks good, and one that is right for you.