The truth about 0% car finance deals

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Written by: Shaun Armstrong
21/07/2017
More people than ever are using some form of finance to purchase a car, and dealerships are able to offer some very low rate deals to entice customers. But is a 0% car finance deal as good as it sounds?

There are a fair number of 0% interest finance deals out there, but people may rightly question whether they too good to be true.

Let’s take a closer look at the 0% interest deal, as well as offer some top tips for those looking to get a good deal, even if it’s not 0%.

Is 0% car finance a scam?

0% APR car finance is not a scam but it does have limitations. The truth is, most people will not qualify for 0% car financing, as you’ll need to have a very good credit score. That means an excellent and long credit history to stand a chance of qualifying.

Buyers can be quite far through the application process before they find out they don’t qualify for the 0% deal. At that point, the dealership is in a strong position to offer another, higher rate deal, as you’re less likely to walk away – particularly if it’s still a reasonably competitive deal.

Also, 0% finance deals may also not be quite as good as they first appear after you’ve dug a little deeper. Car dealers or sellers may be able to offer 0% interest because they have prepaid the interest on the loan by adding the total interest to the purchase price of the car.

You’ll also find that 0% finance deals are likely to be shorter deals with higher monthly payments. That puts pressure on you to keep up the payments. And 0% finance deals are often on slow-selling, poor residual value cars. What you save on interest, you could pay for when you come to trade-in or sell.

It doesn’t mean that the 0% interest deal can’t be good, but you need to do your due diligence before going ahead. Here’s some useful advice to follow if you are looking at 0% finance deals.

Five top tips when looking into 0% car finance deals

1) Scrutinise the terms and conditions

It may seem like an attractive offer but don’t be tempted to sign a finance deal until you’ve checked the contract thoroughly and understand the terms and conditions. You need to make sure that the 0% interest rate offer is not an introductory rate which will change after a few months. Make sure this is a fixed rate for the entire contract.

2) Always have a backup plan

It’s always best to have another car financing option in place just in case you don’t qualify for the 0% financing – you don’t want to be left accepting a higher interest rate from the same dealer just because you haven’t bothered to look elsewhere.

3) Be aware, missed payments may mean additional costs

Check what happens if you miss a payment before you sign the contract as some lenders may hit you with a fine. Always be careful to check for additional unexpected costs.

4) Be savvy, do your research

Shop around and make sure the dealer hasn’t added the interest to the price of the car. Check the true price of the car by comparing what the car sells for elsewhere. Make sure the low interest rate doesn’t mean an uplift in purchase price.

5) Always do a comparison

If you’re looking to get the best deal you can search the whole of market online and find competitive rates and calculations to see what your monthly repayments will be. Shop around, and you’re likely to find some very low interest rate deals right now, where the up-front deposit is smaller and the payment plan is over a much longer-term, leaving the monthly payments more manageable.

Shaun Armstrong is managing director of car finance provider Creditplus.co.uk

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