The real cost of 0% car finance

The real cost of 0% car finance

The facts about 0% car loans

We all love a good deal, but is a 0% car loan really as good as it sounds? We've taken a closer look at the real cost of no interest finance.

How do they work?

Similar to personal loans, 0% car finance means you'll spread payments over a fixed term – but you'll pay no interest. If you're considering taking up this kind of deal, you'll need to keep in mind that the financer will make its money in other ways. Generally the lost interest will be factored into the upfront cost of the car, so you'll probably find the price of the car will be non-negotiable.

What you could also pay for

High repayments: Loan terms are often shorter with 0% loans too, so you'll pay higher monthly repayments than what you would with personal or traditional car loans.

Car services: Some car manufacturers lock you into a contract where you're obliged to service your car with them at set intervals, or they'll void your warranty. The downside is you may end up paying more than if you were to go to an independent mechanic.

Large deposit: You may need to pay a large deposit on the loan, or in some cases a residual or 'balloon payment', which is a lump sum to be paid at the end of the loan term once you've made regular payments.

Be prepared

Just like any financial decision you make, it's worth taking the time to research all your options. Talk to other dealerships about the car you're planning to purchase and the likely trade-in under both a 0% option and a cash sale. Remember you may not qualify for 0% car finance, so have a backup plan that you've done your homework on too. Sometimes dealerships will offer a different finance package to those who don't qualify for the 0% loan, but these can often have higher interest rates than a normal lending facility loan. If you do decide 0% car finance is right for you (and you qualify), you'll know you've made an informed decision.

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