0% APR in Car Finance

If you're offered 0% car finance, it means you won't have to pay any interest over the course of the agreement.

When looking to buy a car, you want to try to find the best deal to suit your needs and budget. You may already have a make and model in mind and know the overall cost, but the difficulty is knowing what interest rate you'll get offered.

Interest covers the cost of borrowing money from a lender and gets added to your overall monthly finance repayment. The rate is referred to as the annual percentage rate (APR) in car finance.

For the average customer, APR is generally between 4-8%, but you may sometimes see deals advertised as having 0% APR or interest-free, meaning you wouldn't get charged for borrowing the money to finance the car.

Do you have a car on finance? Do you want to reduce your monthly repayments? Sign up to Car Credible to see if you're eligible.

Check your deal now

If you are lucky enough to be offered a 0% car finance deal, you would only expect to pay a deposit plus the agreed fixed monthly repayments across the length of your term.

Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements can offer 0% finance. In this article, we'll look into how one qualifies for a no-interest deal and the pros and cons of being in this type of deal.

Can I get 0% finance?

To be in a position to qualify for 0% finance, you generally need to have a flawless credit history, which includes having a track record of making payments on time for several years.

Those with such a profile will likely be required to put down a significant deposit, reducing the amount they need to borrow. If you tick both boxes, you may have a chance of getting 0% finance or very close to that figure.

How does 0% finance affect me?

If you managed to get a 0% finance deal, you would not get charged any interest on the amount you borrow from the lender. An agreement such as this could save you hundreds, if not thousands, throughout your deal.

For example, if you bought a car on an HP finance deal valued at £24,000 and put down a 25% deposit of £6,000, this would make the overall cost of the vehicle £18,000. You then take out a four-year agreement making your payments £375 per month spread across those 48 months.

With a 0% interest finance deal, you would not pay any extra for borrowing £18,000. You would pay £375 per month until you have made all the payments and eventually own the car.

If you had a 5% APR, you'd have to pay 5% of £18,000, plus the cost of the car across the four years of the deal. That would mean you would pay an additional £900 per year.

Over 48 months, it would be an extra £75 per month on top of the £375 you'd be paying on a 0% interest deal.

You should ensure that you stay on top of your loan payments and keep your credit history healthy to enable you to be in a position where your APR gets reduced in the future.


What cars offer 0% finance?

You will generally only find 0% finance deals on brand-new cars. The reason is dealers will often use this tactic for a quick sale on particular vehicles that are due to be replaced in the showroom, so offering no interest offers an additional incentive for them to be purchased.

If you aren't bothered about rogue colours or unnecessary extras, you could find a good 0% finance deal.

Pros of 0% car finance 

  • You will save money on paying interest.
  • You could get a great deal if you're flexible with what's available.

Cons of 0% car finance

  • Your credit history should be excellent.
  • You may need to offer a deposit as large as 40%.
  • You may be limited in what cars you can choose.
Check your deal now

How to get a good 0% finance deal

Before approaching a dealer about a 0% finance deal they are offering, you should do some research and review the price of the car at various other dealerships. 

Some dealers may trick you into thinking you're getting a 0% finance deal when, in reality, they've already added interest on top of the total price, so you are technically paying the interest on top of the actual cost.

Try to be wary of such tactics. Most dealers are fair and honourable but knowing before you go will give you an upper hand when negotiating a good deal that suits you.


How can I pay less on my car finance deal?

If you are an existing car finance customer and decide you want to be paying less, you could try to refinance your deal and get into a longer term that reduces your overall monthly payments. If you've improved your credit score since taking out the finance, you could be offered a lower interest rate.

What is a good APR for car finance in the UK?

If you're buying a car on finance, a reasonable APR is typically between 6%-12%. It will be dependent on your credit score; generally, the better your score, the lower your APR.