Is a 0% car loan really a good option?

The 0% car loan: A car buyer’s dream or a deal too good to be true?

When shopping for a new car, you’ll come across dealers advertising car loans with an extremely low interest rate — sometimes even 0%. This type of dealership loan is generally a sales tactic.

Before signing on the dotted line and driving off the forecourt, there are some things you need to know about taking on a 0% car loan.

Warning: late repayments can cause you serious money problems. See our debt help guides.

What’s the catch with a 0% car loan?

At first glance, a 0% car loan is exactly as it appears, you purchase the car at the agreed price, and then make monthly payments on the price of the car with no interest. However, keep these points in mind:

  • 0% interest may only be offered as a promotion to new customers for a portion of the loan term.
  • To be approved, you’ll need spectacular credit.
  • Negotiating the car price will be difficult.
  • 0% may only be offered on some cars – usually the new models.
  • You may not get as much for your trade-in vehicle.
  • The loan structure will likely be set in stone.

Why would a dealership offer a 0% car loan?

There are different reasons why dealerships offer zero interest. One reason is to get potential buyers in the door. Once a buyer has entered into a salesperson’s territory, the sales battle has begun.

Another reason is to move inventory. By offering a 0% car loan, they can get rid of the cars that have been on the forecourt too long, and make a profit — even without interest.

Is a 0% car loan cheaper than a regular car loan?

If you make all of your payments on time and get a competitive price on the car, it can be. However, 0% car loans tend to have shorter terms, resulting in higher monthly payments of a few hundred pounds.

But if you’ve been approved for a 0% car loan from a dealership, odds are good you have great credit. You’ll probably be able to get competitive deals with a different lender.

What are the benefits of 0% finance?

When it comes to car finance, there are a number of options with 0% loans that may work in your favour. When comparing loans, consider:

  • Shorter loan term. With shorter loan terms comes larger monthly payments. You’ll likely pay off your loan in just a few years instead of the average five to seven.
  • No interest. Your payment goes directly towards the principal of the car.
  • Optional extras. With a 0% car loan you may be able to roll the cost of alloy wheels, leather interior, sunroof or any other luxury items into the finance.

4 tips for making the most of 0% financing

There are few strategies to use when buying a car with 0% financing that can help you use your loan as efficiently as possible, they are:

  1. Keep your loan under 60 months. There are longer car loans on the market that may seem attractive because of the low monthly payment, but you’ll pay loads more in interest and by the time the car is paid off, it will have depreciated in value greatly.
  2. Make a large down payment. By making the largest down payment your budget allows, you’ll have a lower balance to pay off and may be able to take on a shorter loan term in order to own the car faster.
  3. Get pre-approved. Getting pre-approved for a loan will not only give you bargaining power when shopping for a car, but you’ll also know exactly how much is in your budget.
  4. Pick the car you love. Don’t rush into buying a car just because you’ve been offered a great financing deal. If the car isn’t the right fit for you, keep shopping so you don’t make a purchase you’ll regret later.

Bottom line

Before you lock yourself into 0% car loan, research banks and other lenders to see if they can offer you a car loan with terms that are more suited to your financial situation.

Finder survey: What aspects of car finance would matter most to you when choosing it?

I would not choose car finance39.89%28.65%18.64%13.04%3.88%
Monthly cost29.64%23.98%32.2%34.78%20.39%
Interest rate23.82%22.81%28.39%27.95%22.33%
Overall cost23.27%19.88%23.31%25.47%21.36%
Level of deposit required13.3%11.7%20.34%19.88%15.53%
Flexibility on repayments11.08%16.37%12.71%19.88%19.42%
Don't know8.86%13.45%13.98%11.18%21.36%
Customer service8.31%7.6%10.59%16.77%18.45%
Whether there's an arrangement fee8.31%7.6%11.86%11.8%10.68%
Level of early repayment charges8.03%9.36%10.59%11.8%11.65%
Provider reputation6.37%10.53%7.63%14.29%11.65%
Source: Finder survey by Censuswide of 1032 Brits, December 2023

Frequently asked questions

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
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Matthew Boyle is a banking and mortgages publisher at Finder. He has a 7-year history of publishing helpful guides to assist consumers in making better decisions. In his spare time, you will find him walking in the Norfolk countryside admiring the local wildlife. See full bio

Matthew's expertise
Matthew has written 244 Finder guides across topics including:
  • Helping first-time buyers apply for a mortgage
  • Comparing bank accounts and highlighting useful features
  • Publishing easy-to-understand guides

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