How Can Car Finance be “Interest-Free”?
Buying a new or used car on 0% (interest-free) finance sounds very appealing, but is this type of car finance all it’s cracked up to be?
Like with any type of finance deal, a 0% offer will not charge any interest but still allows you to spread the cost of a car over an agreed period of time to make buying a new car more affordable.
Unfortunately, finding the right 0% finance deals for you can often be rather tricky. Luckily, this guide will help you discover all you need to know to make an informed decision and decide if an interest-free car is the best for you.
Things to consider about 0% finance
• The lowest interest rates often required a large deposit; this is generally not a big issue if you have a car to sell or part-exchange, but otherwise, it might require some saving up before heading to the dealership.
• 0% APR normally offers the best savings on new cars, but choosing a second-hand car interest-free finance can also help you save, but may require a longer contract length of five years.
• Be mindful that interest-free finance offers may not include additional savings available with other deals, such as deposit contribution discounts
What are the best cars to get interest-free?
In most cases, it’s best to consider new cars promoting 0% finance deals as they benefit from manufacturer incentives, but, as the used car finance industry is highly competitive, interest-free offers are a common sight across forecourts.
The best new cars on 0% finance are:
• Ford: Fiesta, Focus & Mondeo
• Mazda: 3, 6 & CX-30
• Vauxhall: Corsa, Astra & Insignia
0% Finance tips
As with any type of car finance, it (literally) pays to do your research; people can often feel rushed into buying a new car, and this can sometimes lead to mistakes. By following these quick tips, you can be assured you know what you’re looking at.
1. Know your PCPs from your HPs
Looking into car finance can be daunting but the main two types of car finance are PCP (Personal Contract Purchase) and HP (Hire Purchase). Both these types of finance are available with 0% APR, so make sure you know what option is best for you before heading to the dealer.
PCP is the best option if you like to change your car every couple of years. A flexible PCP contract means that at the end of the contract you have the option to return the car, using and equity to part exchange it or pay a final payment and own the car. In a PCP contract, you are financing a car’s depreciation rather than the whole price, so the monthly cost is noticeably reduced.
HP is better suited if you want to own the car, and will not include mileage limits (unlike PCP). However, these generally have a higher monthly payment and/or longer term.
2. Check the T’s & C’s
A 0% offer can either be for the duration of the contract or just an introductory offer and might change after the first few months.
Make sure you have thoroughly read through the terms and conditions before signing (I know – boring), ensuring you fully understand the contract. If you spot anything you’re unsure about or is different from what you expected, do not hesitate to ask the dealer any questions.
3. Can you keep up the monthly payments?
There is nothing worse than a payday where all that month’s money is already committed; make sure you can afford the monthly payments – whilst still being able to live. You might really want that new Mercedes on finance, but remember you can’t eat tyres for dinner all month. I mean – you can try but wouldn’t be great for the bowels.
4. Compare the overall cost with other finance options
It’s easy to get wrapped up in the enticing “interest-free” statement, but sometimes there are actually other low-interest finance deals that offer a lower deposit and smaller monthly repayments that might be better suited to your budget; however, this might mean a longer contract length.
Don’t be disheartened if you are not accepted for a 0% finance deal; lenders might be less likely to offer them to anyone suffering from a poor credit rating. However, this does not mean you can’t explore your options and find an equally-good deal.