A huge number of car buyers use finance to purchase new cars. Sales slowed during the 2020 pandemic, but things are picking back up again now, especially since many car dealers and manufacturers are offering 0% car finance deals.
In this article we’ll take a closer look at 0% APR car finance deals, including all the information you need to know about them.
Although the headline 0% figure can draw a lot of attention, it’s worth remembering that they’re not always the fantastic deals they’re marketed as. There are sometimes drawbacks to 0% finance, such as needing good credit or a large deposit. Plus, these deals aren’t all that common, so you might not be able to get the car you really want with this kind of deal.
Before you buy a new car you may want to get a car valuation, so you know how much to budget for your next car. It’s easy to do that – there are plenty of online tools you can use to research this.
What is 0% interest car finance?
When you take out a loan, you usually get charged interest at a certain percentage – but with 0% car finance, you don’t pay this extra money on top of the borrowed amount. This means you only pay back the amount the car costs and nothing more.
If you look at the total amount to pay on any 0% finance deal it should be identical to the list price of the car, unless there are other fees involved that aren’t interest on the loan.
Finance usually comes in two forms with cars: PCP and PCH. The former is where you pay a deposit and then monthly for a few years and are then given the option to either hand the car back or pay a balloon payment to own the car. The latter is the same as leasing, where you just pay monthly to drive the car for a few years.
Both can come with 0% finance but it’s more useful if you’re planning to buy the car because you won’t pay any interest on it.
What to look out for with 0% finance
The things you need to look for with 0% finance are the same as with any finance deal: the small details. Check the length of the agreement, any limits on mileage, the monthly cost and in the case of a PCP deal, the amount you pay to own the car at the end of the term.
Always make sure you can afford the monthly payments and will be able to afford them for the length of the term. Sometimes the 0% rate doesn’t apply to the full term – so check the small print for this.
In fact, all the terms and conditions are worth looking at carefully before you sign on the dotted line. Check the penalties for things like going over the mileage limit, damaging the car or missing a payment.
Why to choose 0% APR car finance
The main reason to buy a car using 0% finance is that you won’t be charged any extra for spreading the cost of a car over a few years. It makes it easier for some people to buy a new car.
Finance deals with interest added can mean you pay out of pocket just to pay in instalments – so it’s more expensive than if you bought with cash. Using a 0% deal avoids this, so it’s easy to see why it’s a popular way to attract customers.
Why not to choose 0% finance
Usually 0% deals are offered with quite a hefty deposit – this means you pay more up front than with a deal with interest. It means not everyone is able to go for these options because they may not have the cash to put down a big deposit up front.
The term lengths tend to be shorter, too, which means you pay more per month in a lot of cases. You also need to have good credit history to be able to use 0% deals in most cases.
