Is a 0% car loan really a good option?

Information verified correct on December 8th, 2016

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

When shopping for a new car you may be surprised to see offers from the dealer advertising new car loans at a 0% p.a. interest rate. At first glance, this offer is exactly as it appears, you purchase the car at the price given and then make monthly repayments on the principal of the car without any interest being applied to it. However, there are some things you need to know before taking advantage of one of these loans.

How does a 0% car loan work?

These loans are offered by dealership financiers and are generally a sales tactic. While you will not be charged interest, the dearship makes its money back in the price of the vehicle. These loans usually mean the following:

  • The purchase price of the car is non-negotiable
  • You will likely be offered a lower price for a trade-in vehicle
  • The loan structure (term, balloon payment) is not flexible

Where can I obtain a 0% car loan?

In order to entice new business, car manufacturers offer the no interest deals through their dealerships. You'll usually see the 0% rate advertised by dealerships in order to get buyers in the door.

IMB New Car Loan

IMB New Car Loan

Apply for IMB New Car Loan and enjoy a great low fixed interest rate with no ongoing fees.

  • Interest Rate From: 6.34% p.a.
  • Comparison Rate: 6.62% p.a.
  • Interest Rate Type: Fixed
  • Application Fee: $199
  • Minimum Loan Term: 1 year
  • Maximum Loan Term: 7 year
  • Minimum Loan Amount: $2,000
  • Maximum Loan Amount: $75,000

Alternatives to 0% dealer finance

Rates last updated December 8th, 2016
Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Application Fee Monthly Repayment
CUA Fixed Rate Car Loan
A competitive car loan that offers flexible repayment options and no account keeping fees.
From 6.79% (fixed) 6.92% $15,000 1 to 7 years $0 Go to site More
IMB New Car Loan
This fixed rate new car loans up to 2 years old features no early repayment penalties
From 6.34% (fixed) 6.62% $2,000 1 to 7 years $199 Go to site More
RACV Car Loans
Enjoy this fixed rate new car loan offer from RACV. No ongoing fees.
From 6.2% (fixed) 6.73% $15,000 1 to 7 years $378 Go to site More
NRMA Car Loan
Purchase a new car with an NRMA Car Loan with a fixed rate term and no monthly fees.
From 6.2% (fixed) 6.73% $15,000 1 to 7 years $378 Go to site More
RACQ New Car Loan
Apply online and receive a response within 5 business hours.
From 6.2% (fixed) 6.73% $15,000 1 to 7 years $378 Go to site More
Latitude Personal Loan (Secured)
Can be used for whatever purpose: renovating, buying a car, booking a holiday. Funds can be in your account in as little as 24 hours.
From 12.99% (fixed) 14.2% $3,000 2 to 7 years $250 (Loans under $4000 - $140) Go to site More
Matchacar Financing
Get a tailored financing solution for buying your next car.
From 5.35% (fixed) 6.04% 1 to 7 years $350 Go to site More
IMB Secured Personal Loan
A secured loan from IMB with flexible repayment features
From 7.39% (fixed) 7.67% $2,000 1 to 5 years $199 Go to site More
St.George Secured Personal Loan - Fixed Rate
Get behind the wheel of your perfect car with a competitive interest rate from St.George. Get an application response within 60 seconds.
From 8.49% (fixed) 9.39% $3,000 1 to 5 years $195 Go to site More
Bank of Melbourne Secured Car Loan
A low rate personal loan from Bank of Melbourne with variable or fixed option.
From 8.49% (fixed) 9.39% $3,000 1 to 5 years $195 Go to site More
BankSA Fixed Rate Car Loan
Apply for a fixed rate car loan from multi-award winning BankSA.
From 8.49% (fixed) 9.39% $3,000 1 to 5 years $195 Go to site More

What are the pros and cons of 0% finance?

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

  • Added optional extras.
    When you are choosing your new car there may be options available such as alloy wheels, leather interior or other luxury items. With a 0% car loan you may be able to roll the cost of these into the finance.
  • Capped price servicing.
    With a 0 percent car loan from a dealership, you may be able to get a bonus of capped price dealer servicing into the cost of the loan. It's important to check this fact before signing a contract.
  • Higher loan amounts
    Most banks and institutions limit the amount of money they will lend to you for a new car. With a 0% option and a deposit, you may be ale to secure a higher loan amount.
    • Inflated cost. The price of the vehicle is almost certainly going to be higher than if you were to buy it with traditional financing. You can check this first by searching online for the average price of the car without the 0% p.a. interest before going to the dealership.
    • Large deposit. You are most likely going to be required to provide a significant amount of money down when you enter into the terms for this type of loan.
    • Credit history. Typically, only borrowers with a pristine credit history will be considered for this type of automobile financing.
    • Fees. Some of the manufacturers are hiding the cost of interest in monthly maintenance fees. Still do the math. In some cases this will equal a very low rate loan, and still one that could be considered.
    • High repayments. The manufacturer wants these types of loans paid off fast and will usually limit your options for terms. This will result in a higher monthly repayment for you.
    • No negotiating. There is not going to be any negotiating the price of the car when you are getting this type of deal.
    • Trade in value. Expect that the car you use as a trade in will be drastically undervalued. In this scenario, you are better off to take the loan as is and sell your old car independently to get a fair price.

What other options do I have?

Before you lock yourself into this type of arrangement, investigate other types of car loans. Both bank and non-bank lenders will offer personal loans for a new car that may save you more money than with the zero percent interest dealer offer. This is because the loan is for the purchase price of the car, which will likely be cheaper than it would on 0% finance.

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IMB New Car Loan

This fixed rate new car loans up to 2 years old features no early repayment penalties

RACV Car Loans

Enjoy this fixed rate new car loan offer from RACV. No ongoing fees.

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