What is 0% car finance? Is it really interest-free?

In simple terms, 0% car finance means you get to pay for your car with no interest added to your monthly repayments. It’s a great way to make buying a car a little more affordable, and we’re here to explain how it works, the benefits, and what you should be aware of to help you decide if it’s the right fit for you.

How does 0% car finance work?

0% car finance isn’t available everywhere, and is typically a promotional offer for new cars, available for a limited time.

To qualify, you’ll typically require an excellent credit score. If you’re eligible, you can choose between Hire Purchase (HP) or Personal Contract Purchase (PCP) and spread the cost over one to six years with fixed monthly payments. You won’t pay interest during the loan term (unless the 0% interest rate is limited to the first year), but watch out for extra fees or admin charges.

Is 0% car finance really free?

It is interest-free (though the 0% can be time-limited, for the first year, for example), but there are trade-offs. To balance the interest loss, dealers may raise the vehicle’s price, limit you to certain models, or require a higher deposit. You might also face higher monthly payments than you otherwise would, especially with shorter loan terms.

Who is eligible for 0% car finance?

Typically, 0% offers are available to buyers with excellent credit scores. Higher-income buyers or those with strong financial histories have better chances. But if your credit isn’t perfect, don’t worry! You may still be able to find an affordable finance option that works for you.

Pros and cons of 0% car finance

Pros

• No interest on your monthly repayments, so you’re only paying for the car itself.
• It can be cheaper than traditional finance if the deal is structured well, meaning you could end up saving in the long run.
• Available on some brand-new cars, so if you're after the latest model, this could be a great way to get it.

Cons

• You’ll likely need to pay a higher deposit, so it’s important to make sure you’re comfortable with that upfront cost.
• The price of the car may be less negotiable, which can be frustrating if you’re hoping for a better deal.
• These offers often come with shorter loan terms, which means your monthly payments could be a bit higher.
• You may have fewer extras or discounts to choose from, as some offers limit the options available.

Is 0% car finance right for you?

0% offers can be tied to specific models, like those in unusual colours or with modifications that might not be to everyone’s taste, so it’s a great option if you're flexible on the car choice. While special offers and 0% deals can be tempting, you’ll need to think about your budget, deposit, and how flexible your repayments need to be. If you qualify, make sure to compare the total cost with other finance options to ensure it's the best deal for you.