0% car finance

Definition

0% car finance means the loan is interest-free. Put simply, you only pay back the amount borrowed over an agreed repayment period, plus an initial Deposit.

At face value this may seem an attractive option, but 0% car finance is not without its drawbacks.

What’s the catch?

Eligibility for 0% car finance

To be eligible for 0% car finance, an Excellent Credit Score is essential.

When you apply for a loan, lenders use your credit score to determine your credit worthiness.

A bad credit score suggests you pose a greater risk, so lenders will usually charge a higher Interest Rate as a result.

If your credit score is less than perfect, don’t worry. There’s still a good chance you’ll be eligible for car finance.

You can Check Your Eligibility for free without affecting your credit score.

You could end up paying more

Whilst some no-interest agreements are genuinely a cost-effective option, others can be misleading where the cost of interest is simply added to the cost of the vehicle.

This clever trick is sometimes used by unscrupulous car dealers and can easily mislead you into thinking you’re paying less, when in fact, you’re still repaying more than the value of the car.

Less choice when choosing your car

Dealerships often use 0% finance deals as an incentive to sell older stock quicker and make room for newer models, so in most cases 0% car finance deals are only available on certain models.

If you’re not picky about the car you want, this may work to your advantage.

But if have your heart set on a specific model, there’s a good chance you’ll have to pay the interest.

A large deposit is usually required

Whilst most car finance deals require a deposit of around 10%, a deposit for an interest-free agreement is often much larger, sometimes as high as 40%.

This can have a big impact on the overall cost of your loan and may even outweigh the benefit of paying 0% interest.

It may only be 'interest-free' for a limited period

When lenders advertise 0% interest deals, the contract may only be interest-free for part of the agreement.

For example, your contract may be interest-free for the first 6 months, but after this period you may be required to pay the full interest until the end of your agreement.

To avoid getting caught out, always take care to read through your SECCI Form carefully before you sign the agreement.

The SECCI form is a legal document that outlines the key details of your finance agreement, and all regulated finance providers are legally required to provide this before you enter an agreement.