Is a 0% car loan really a good option?

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 1% p.a or even 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. Here are the main points to keep in mind:

  • You will not be charged interest for a set period
  • The principal (amount you borrow) is lower due to a balloon payment
  • The purchase price of the car is usually non-negotiable
  • You will likely be offered a lower price for a trade-in vehicle
  • The loan structure (term, balloon payment) is likely to not be flexible

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

This depends. A 0% car loan can be cheaper if you are able to save up your balloon payment while you are paying off your finance. However, this can be difficult to do for a lot of people. 0% car loans can have terms for up to five years, and often the repayments are a few hundred dollars a month.

As the lower repayments are the key benefit of a 0% car loan, saving up $5,000 or more by the end of the loan term can put a damper on this benefit. The advantage of standard car loans are that they have similar loan terms, and while you may pay more interest, the repayments you make will mean your debt will be paid off within the loan term, making it easier to budget.

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 1% or 0% rate advertised by dealerships in order to get buyers in the door.

Alternatives to 0% dealer finance

Stratton Finance New Car Loan Offer

Stratton Finance New Car Loan


5.29 % p.a.

fixed rate


6.56 % p.a.

comparison rate

  • Rates from 5.29% p.a.
  • Loan terms 1-7 years
  • Fast approval
Security Logo

100% confidential application

Stratton Finance New Car Loan Offer

Benefit from Stratton's expertise to get a fixed or variable rate car loan.

  • Interest rate from: 5.29% p.a.
  • Comparison rate: 6.56% p.a.
  • Interest rate type: Fixed
  • Application fee: $459.20
  • Minimum loan amount: $18,000
  • Maximum loan amount: $100,000
Go to site
Rates last updated July 20th, 2018
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Monthly Service Fee Application Fee Product Description Monthly Repayment
Stratton Finance New Car Loan
From 5.29% (fixed)
1 to 7 years
Apply for up to $100,000 and have up to 7 year(s) to repay. You can use cash or trade in a vehicle to use as a deposit.
Latitude Personal Loan (Secured)
From 12.99% (fixed)
2 to 7 years
$250 (Loans under $4000 - $140)
Benefit from a tailored fixed rate from 12.99% p.a. to 28.99% p.a. with a loan that can be used for any purpose.
IMB New Car Loan
5.99% (fixed)
1 to 7 years
Borrow up to $75,000 for a new car up to two years old. Competitive 5.99% p.a. rate available to all approved applicants.
Beyond Bank Low Rate Car Loan
From 5.69% (fixed)
1 to 7 years
Take advantage of a competitive rate, pre-approval and no early repayment fees when you finance a car under two years old.
Loans.com.au - New Car Loan
From 5.44% (fixed)
3 to 5 years
This car loan is for new cars and offers a low fixed rate and no ongoing fees.
RACV New Car Loans
From 5.99% (fixed)
1 to 7 years
A competitive rate car loan from RACV with no monthly fees and 5-hour loan approval.
IMB Secured Personal Loan
6.89% (fixed)
1 to 5 years
All approved applicants can access this competitive rate and use the loan to finance a range of purposes. Loan amounts up to $60,000 available.
MyState Secured Personal Loan
From 7.99% (variable)
1 to 10 years
Apply for a loan up to $75,000 and benefit from loan terms up to 10 years. Your choice between secured or unsecured.
Westpac Car Loan
From 8.49% (fixed)
1 to 7 years
Finance a new or used car and benefit from great features for car buyers including a car search tool and the option to borrow extra for on-road costs.
St.George Secured Personal Loan - Fixed Rate
From 8.49% (fixed)
1 to 5 years
Use your car as security and benefit from a competitive interest rate.

Compare up to 4 providers

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.

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.

Picture: Shutterstock

Was this content helpful to you? No  Yes

Related Posts

Car Loan Offers

Important Information*
IMB New Car Loan

Borrow up to $75,000 for a new car up to two years old. Competitive 5.99% p.a. rate available to all approved applicants.

Latitude Motor Vehicle Loan

Apply online to finance a new or used motor vehicle and receive a response in 90 seconds. You will receive a competitive tailored rate of between 6.99% p.a. to 14.99% p.a. based on your risk profile.

Stratton Finance New Car Loan

Apply for up to $100,000 and have up to 7 year(s) to repay. You can use cash or trade in a vehicle to use as a deposit.

Loans.com.au - New Car Loan

This car loan is for new cars and offers a low fixed rate and no ongoing fees.

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms and Conditions and Privacy Policy.
Ask a question
Go to site