Interest free cars: what it means and where to find them

There’s no denying that the cost of motoring has increased in recent years, causing many new car buyers to favour financing. Options like personal contract purchase (PCP), personal contract hire (PCH) and hire purchase (HP) let drivers spread the cost of buying a new car, but they’ll likely end up paying more in the long run than simply buying the car with cash.

The main cause for this is the loan’s Annual Percentage Rating (APR). This is the official cost of borrowing money per year and covers interest and any mandatory fees you might be subject to.

Typically, most new car finance deals have an APR of between 4% and 8%. However, it’s possible to get a 0% APR car deal in the UK, meaning the only extras you’ll need to pay are the deposit and, in some cases, the optional final deposit to own the car at the end of the contract.

Here, we share how you can finance a car without having to pay interest and highlight any downsides these deals have to help you weigh up whether a 0% APR deal is right for you.

Is it possible to get 0% interest on a car?

If you’re shopping for a new car, you’ll likely encounter a number of manufacturers promoting ‘0% APR representative’ financing deals. As they would suggest, these deals mean you don’t pay any interest during the finance agreement. However, since the offer is based on representative APR – rather than personal APR – there’s no guarantee you’ll be able to qualify for the deal.

Representative APR

Used in advertising, representative APR is a general figure that gives you an idea of the rate you’re likely to pay. To promote 0% representative APR, car manufacturers have to guarantee that at least 51% of customers will qualify for it. 

As a result, there’s no guarantee that you’ll be eligible for a 0% APR car finance deal simply because a manufacturer has advertised it.

Personal APR

This is the rate you’ll actually pay when entering a car finance agreement. Unfortunately, working your exact personal APR out in advance is incredibly tricky to do, as it’s based on a variety of factors including your credit score, current financial position and how much the car you want to finance is worth. 

Fortunately, many car finance services offer free online eligibility checkers that can give you an idea of what your personal APR would be without agreeing to a car finance agreement. This is good to know before you decide whether to choose an interest-free car finance deal because a hard finance check made by a dealer could temporarily lower your credit score, particularly if multiple are made within six months.

How hard is it to get 0% financing?

Driving away in a 0% interest car isn’t impossible but often requires some skill. Once you’ve found a model you’re interested in buying that’s currently available with 0% APR financing, the dealer will need to complete a hard credit check to assess your credit score.

While there’s no hard and fast rule, you’ll likely need a ‘good’ or ‘excellent’ score in order to qualify for a 0% interest car finance agreement. You’ll also need to share your salary, employment details and – in some cases – information about other financial commitments in order to prove to the dealer that you have a steady income.

What are the downsides of 0% car deals?

While the idea of paying little-to-none more than the list price when buying a new car seems tempting, 0% car financing does come with some drawbacks. 

First of all, interest-free car deals aren’t permanent, meaning there’s no guarantee the new car you want to buy will be available with interest-free financing. And even if the manufacturer is offering 0% car financing on the right model, it might not cover all power options and trim levels.

What’s more, when car manufacturers do offer interest-free financing on their models, it’s likely that they’ll be less flexible about the terms of the contract. In particular, these deals typically feature shorter contracts – often 24 or 36 months – and require buyers to put down a larger deposit. As a result, you’ll likely have to pay more over a shorter period of time than you would if you entered a finance agreement with a higher APR.

In some cases, you’ll also encounter higher early repayment charges and tighter mileage restrictions if you choose a 0% interest car deal.

To demonstrate the differences you might encounter between an interest-free car finance contract and a finance agreement with a higher APR, we’ve listed the key terms of two PCP agreements for a Cupra Born 59kWh V2, each lasting 36 months and featuring a deposit of 10% of the car’s list price.

Is 0% car finance worth it?

While nobody wants to feel as if they are paying more than the value of the car they’re financing, there’s more to consider before signing up to an interest-free car finance deal.

Pros of a 0% car finance deal:

- You avoid paying (notably) more than the car is worth

- Your monthly payments are predictable throughout the agreement

Cons of a 0% car finance deal:

- Not all cars are available with interest-free financing

- The terms of the contract might not be as flexible

- You might not be accepted, and a hard credit check could affect your credit score

Of course, no matter what kind of car finance agreement you’re considering, you must always check the contract carefully to make sure there aren’t any hidden fees and that the terms laid out – such as the length and annual mileage – are realistic for you. If you have any doubts about a finance agreement, talk to the dealer and don’t be afraid to walk away.

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Read more: PCP or HP: should I still consider HP? >>