Is 0% Car Finance Too Good To Be True?

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Is 0% Car Finance Too Good To Be True?

Oxcel Finance
May 18, 2022

In the current low interest rate environment, there are a lot of attractive offers for car finance, particularly coming from dealers.

In some cases, you can even find dealers offering 0% finance. While that might look good on the surface, it’s important to understand that the low interest rate might very well come with some additional costs that you hadn’t anticipated.

Here are a few things you need to consider before taking on such a low interest rate.

The Car’s Price

If you’re getting a deal with 0% interest, it’s possible that you will have to pay more for the car itself. It’s highly unlikely that you’re going to be able to negotiate on the price of the car, and you could even pay far more than you need to.

Trade-In Value of Your Old Car

If you are looking to trade in your old car, you might not get the best possible price from a dealer if you require a lower interest rate on your car loan. There’s generally a spread that a dealer must make on the purchase of a second-hand car, and that could mean you get a lower price and/or you pay more for your new car.

Higher Deposit

In many instances, it’s possible to get a car loan and pay little or no deposit. This is unlikely if you are getting a very low interest rate as there is some risk to the lender and dealer. Finance is a trade-off at times, and you will need to provide something more if you need a lower interest rate.

Shorter Loan Terms

Generally speaking, low interest rates or even introductory offers are only for short set periods of time. While it might be possible to get a standard car loan over seven years, if you’re getting a low interest rate, it might be for only two or three years. If you have a shorter term, then a low interest rate might not make that much sense, because your overall payments will be higher.

Fees

Sometimes, these type of interest-rate offers come with other fees and charges that soon add up. It’s important to look at the total cost of the car, the finance and the repayments over the lifetime of the loan; not just how much your interest rate is in comparison to others as it does not always tell the full story.

Lack of Choice

In most instances, low interest rate offers are limited to select vehicles within the dealership. While this might not be an issue, if you are in the market specifically for a certain type of car, you might not find what you want.

It is far better to have a finance broker look at your personal situation and find a loan that suits you, rather than focusing on getting the lowest interest rate. Often, the interest rate itself is the least important part of getting finance, even though it is the most talked about.