The truth about 0% car finance

August 12, 2014
Peter Ruddock

Did you know we also do car finance? Offers of 0% (or 1, 2, 3% …) interest on car finance may sound tempting, but it pays to read the fine print.  Remember, deals that sound too good to be true, often are.


When it comes to car finance there’s no such thing as a free lunch. If the official cash rate is above zero, and the banks and other mainstream lenders are charging more than this, it’s a fair bet that somewhere along the way a 0% deal will see you slugged with additional fees and charges. It’s up to you, the buyer, to find out where.


The best way to compare car finance is not to look at the interest rate but to compare the repayments and the total amount to be repaid over the term of the loan. Factor into this the price you pay to purchase the car and what you could have bought it for if you organised your finance separate to the purchase transaction.


Features of 0% car finance offers

It’s used to get buyers into the showroom

For car dealers, getting buyers to walk into the showroom is a big part of the battle to secure a sale. An offer of 0% grabs our attention and gets us to check it out. The deals are often marketed as being 'for a limited time only' to create a sense of urgency.


Less price flexibility – can you still negotiate on the purchase price?

While 0% sounds generous, the deal isn't entirely interest-free. The finance provider is not making a loss and still earns their interest on the finance. Instead of the money being spread over the term of the loan, the interest is factored into the upfront sales price of the car. This means the dealer may not be able to afford to be flexible on the price of the vehicle – or particularly generous with a trade-in offer. Often you are better off paying ‘normal’ interest rates on the car finance and negotiating a better purchase price for the vehicle.


Higher servicing costs – can you decide where the car is serviced?
Zero per cent deals typically apply to new cars (not used cars and often those that are not ‘high volume’ models) and it's likely you'll be obliged to have the vehicle serviced by the dealer at set intervals – otherwise you risk voiding the warranty. These service charges can be a lot more than you’d pay at an independent mechanic.


Up-selling additional services

Dealers also aim to make their profit on the car sale with add-ons like an extended warranty and a variety of extras. Some will even dangle the carrot of a guaranteed price on your next trade-in, thereby locking you in to a future sale. Stop, compare, be informed - the key to getting a good deal on your next car is homework. Research the market value of any vehicle you're planning to trade in – this will give you a head start in price negotiations and never be pressured into signing up for a purchase on the spot.


Speak with a loan expert - talk to us at Mortgage Choice to see how other forms of car finance compare. It may turn out the 0% offer is right for you but at least you'll be able to enjoy the vehicle knowing you made an informed choice.


Have you realised it’s a good idea to have a good broker working for you? For more information, contact Peter Ruddock on (03) 9877 6471 or

Posted in: Car loans & leasing

Contact us today.

Additional Comments? * :