Pros and Cons of 0% APR Car Finance

If you’re planning to buy a car in the near future, you might have considered a model covered by a 0% APR finance deal attached to it.

These offers are presented as being fantastic deals by the sellers, but you’re probably thinking ‘what’s the catch?’

There are all sorts of questions you ask yourself before buying a car: How do I value my car, and then sell it? How does that affect my budget? Can I afford to buy with cash, or do I need to use finance? What are the pros and cons of a 0% car finance deal?

Here we’ve put together an explainer to help you to answer that last one, in the form of a list of the positives and negatives of choosing 0% car finance. Before we do that, though, you need to know what 0% car finance actually is.

0% Car Finance Explained

Usually when you take out a loan or car finance, you pay interest on the borrowed money. With 0% finance, you don’t. That’s it in a nutshell: the amount you’ll pay over the course of the finance term is the same as the price of the car. There might be some other fees but those aren’t the same as being charged interest on a loan.

There are two main types of car finance: PCP and PCH. Personal Contract Purchase is the most popular type and at the end of the agreement this allows you to buy the car with a final payment, whereas Personal Contract Hire is what it says on the tin: a long-term rental rather than a purchase.

Finance deals with 0% APR are great if you want to buy the car, because you won’t need to pay more than the list price. With PCH or leasing it just helps to keep the monthly cost down.

You should check the finer details before agreeing to any finance deal. Make sure you’re aware of the length of the agreement, mileage limits, how much you can afford to pay each month and how much you’ll need to pay at the start and end of the term.

There are penalties for things like damage to the car or going over a mileage limit, so make sure you are in the know about those too. 

Pros of 0% Car Finance

• You can get into a new car you might not otherwise be able to afford to buy with cash
• You won’t be charged extra for paying over months and years - it’s no more expensive than buying all in one go
• Even if you can afford to buy in cash, you’ll avoid having to spend a large chunk of savings in one go by using finance
• You might be able to afford a car you couldn’t otherwise consider because it was previously out of your price range

Cons of 0% Car Finance

• Deals with 0% APR usually require a larger deposit than an interested-added deal
• Term lengths tend to be shorter, which usually means it costs a bit more per month to pay back the loan
• You need to have excellent credit history to be able to be offered 0% APR
• Using finance is always a risk because your future circumstances might change and you might not be able to make repayments