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0 interest car loans or new car loans at a 1% p.a. is usually offered by dealers or manufacturers.
At first glance, this offer is as it appears. You purchase the car at the advertised price and then make monthly repayments on the principal of the car without any interest being applied to it.
However, while it may sound like a good deal, there are a number of things you should be aware of before committing to a 0% car loan.
Interest-free car loans are offered by dealership financiers and are generally used as a sales tactic. While you won't pay any interest on the loan, you may not actually be saving any money compared to a normal car loan. The dealer may be charging you a higher price for the car, or adding on extra fees and charges that end up costing you more than any interest repayments would. This will also generally be true of deals offering 1% finance, as the total cost of the loan may still be greater than a regular car finance option that charges a higher rate.
The 0-1% interest may also only be offered for a certain period of time, after which the loan reverts to a higher interest rate. You may also be required to make a large lump sum payment at the end of the loan, called a balloon payment, that will lower the size of your repayments but may be harder to budget for.
As with any financial product, it's important that you understand the terms and conditions of any 0% car loans you may be considering, and you should always compare a range of different loans to find the finance option that's right for you.
Here are the main points to keep in mind:
Car manufacturers may offer no-interest – or 0% car finance – deals through their dealerships in order to entice new business. It is very unlikely to find a traditional lender offering a car loan with a 0% or 1% interest rate.
Where a 0% finance offer is available, these are the points worth weighing up before you sign.
Before you lock yourself into this type of arrangement, you should always compare a range of loan products. While paying 0% or 1% interest on your car finance may seem the best option, this will not necessarily be the case and you may be able to save money by using a regular car loan.
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