What to look out for in your 0% car finance deal

The best kind of deal is free, so it’s no surprise that car finance deals with 0% APR are so popular and sought-after.

What a 0% APR deal means is that you don’t pay any interest for taking out a finance package. You only pay the price of the car without any added extras – saving you money over the long run.

Seen a good 0% finance plan you want to take advantage of? Well, the first thing you’ll be asking yourself is ‘how much is my car worth?’ – a good price for trade-in is a great starting point for any new car finance deal. Online valuation tools can be a great start to make sure you’re getting the best possible price for your trade-in.

0% finance can be available on either PCP (Personal Contract Purchase) or HP (Hire Purchase) agreements. PCP deals mean you finance a portion of the car, and

Before committing to any 0% finance agreement, shop around. It’s important to remember that interest isn’t the only part of a finance plan that could save you money. A rival plan that does have interest could work out cheaper if the manufacturer offers things like money off, a deposit contribution, or valuable extras like a service plan.

Remember too that 0% finance plans do have caveats. You’ll often have to put down a larger initial deposit to secure those 0% terms, which could be a deal-breaker for those who don’t have the cash immediately free in their bank accounts.

0% finance is also only offered to customers with good-to-excellent credit score and a strong credit history, so if you have poor credit you may be denied finance.

As with any finance package, look at the small print. Check and double-check the length of your finance agreement, any limits on mileage, how much it’ll cost you per month and – if opting for a PCP – how much the optional final payment (sometimes called a balloon payment) is at the end of the agreement.

It’s also well worth checking that the 0% APR is fixed for the length of the contract. Most of the time it will be – but you don’t want any nasty surprises if it turns out it isn’t.

Check the fees, too – find out how much you’ll be charged if you go over the agreed mileage limit. Best too to familiarise yourself with the various processes should you damage the car, miss a payment, or want to return the vehicle ahead of the contract end date.

Car manufacturers and finance companies have to adhere to Financial Conduct Authority rules. This regulatory body regularly publishes reviews into the motor finance industry, including interest free cars – so there’s some additional research to be done there if you fancy it.

Alternatives to interest free finance? Well, interest free deals are increasingly rare, but there are still several car manufacturers offering a low APR rate which while not totally interest-free is very cost-effective.

You could also opt for PCH, otherwise known as Personal Contract Hire or leasing. Here you don’t pay any interest because you’re not actually buying the car – you are, in effect, renting it for an extended period. It’s an especially useful solution if you don’t want to own the car at the end of the agreement, you don’t want a car for an extended period of time or if you don’t have a strong credit score.

So, to sum up:

Pros of 0% car finance

  • No additional interest to pay for spreading the cost of a car over a set period of time
  • Potential for big savings – a typical finance package adds thousands in interest charges

Cons of 0% car finance

  • Usually requires a large deposit
  • Terms can be shorter than traditional PCP or HP contracts, increasing monthly payments
  • Requires a good or excellent credit score and good credit history
  • Rarely offered in conjunction with other discounts and deals