Interest-Free Finance
0% car finance deals mean you don't pay any extra interest or other charges on your car finance package. With less money to repay, you can put your entire budget behind getting the right car. However, zero percent finance deals often require you to pay quite a hefty deposit - often up to 40% of the price of the car, making it suitable only for those with some savings to put down.
This type of deal also often requires the loan to be paid off in a shorter time than other loans (often 24 or 36 months compared to the more common 48- to 60-month term), making your monthly repayments higher. You're also unlikely to get any discount on a 0% deal, so it could work out more expensive overall, as the example in the table below shows.
| APR | 0% | 10% | 10% | 10% |
| Months Financed | 24 | 24 | 36 | 48 |
| Cost of Car | £15,000 | £15,000 | £15,000 | £15,000 |
| Discount | £0 | £2,000 | £2,000 | £2,000 |
| Deposit | £3,000 | £0 | £0 | £0 |
| Amount to Finance | £12,000 | £13,000 | £13,000 | £13,000 |
| Monthly Payment | £500 | £600 | £420 | £330 |
| Total Cost | £15,000 | £14,397 | £15,101 | £15,826 |
| Savings at 10% APR | - | £606 | (-£101) | (-£826) |
In this example, choosing the zero percent finance option would be your best choice if you had the £3,000 deposit to put down, and you could afford the relatively high monthly payments of £500. If you wanted to save some money, then the 2-year term at 10% would be your best bet, as you would be able to take advantage of the short loan term and the discount offer. However, this would mean paying almost £600 a month in repayments.
For a very similar total cost to the 0% deal (just £100 more), the 3-year 10% deal would offer buyers a reduced monthly payment (£420 a month, compared to £500). Those willing to pay more overall for the ability to make reduced monthly payments would be best advised to go for the 4-year deal at 10% (£330 a monthy compared to £500), although they would end up paying an extra £826 over the life of the loan for this convenience.
Hire Purchase Car Leasing
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