Everything You Need to Know About Zero Percent Car Loans


If you’re looking to buy a new or used car from a dealer, you might come across some dealers that are prepared to offer zero percent car loans. If or when you do, remember the old saying: “nothing in life is free, you always pay in the end”.

Read on to find out what you need to know about zero percent car loans and why you should be wary of these car finance offers in Australia.


How can I get a 0% interest car loan?

Zero percent car loans are a sales tactic used by some dealers to get you to buy. They usually come with stricter terms and conditions than standard car finance. For example, you’ll be very unlikely to qualify if you have a bad credit score or  if you haven’t been with your current employer for a decent length of time.  They may also leave you with a high residual payment owing at the end of the loan term which is higher than the car is worth.


Zero interest car loans

While the ‘zero interest car loan’ term may be technically correct, there’s much more to getting a good car finance deal than just looking at the interest rate. Always look for the catch so that you know what you’re really signing up for when you take out any car finance.

If you don’t fully understand the deal, get advice from a car broker before you sign.


What is the catch with zero percent financing?

Zero percent car loans will usually have hidden costs such as:

  • a higher purchase price for the vehicle. Lenders have to make their money somehow.

  • you usually won’t be able to haggle over the price or get any free added extras like you usually can with a car dealer or private seller. Zero percent car loans are usually not negotiable.

  • a low price if you’re looking to trade-in your current vehicle as part of the sale.

  • a shorter loan term, meaning that your repayments will be higher than you could get with a standard car loan. Zero percent car loan terms are usually four years or less, while standard car loan terms are available up to seven years. The longer the term, the lower your repayments.

  • other fees and charges besides interest (such as a loan establishment fee and ongoing charges).

  • a compulsory servicing arrangement with the dealer to maintain the vehicle’s warranty (and this is where the dealer will make their money because it’s likely that you’d be able to get your car serviced cheaper elsewhere).

  • an upsell to other services or after-market products you don’t need (such as extended warranties or a guaranteed trade-in price that locks you into a future sale with the dealer).

  • a balloon payment at the end of the loan. This is a large single repayment that you need to make at the end of the loan term. Balloon payment amounts can be as high as 50% of the price of the vehicle. You’ll find it hard to save for the balloon payment you inevitably need to make if you have a short loan term and higher regular repayments, and when the balloon amount due is higher than the car is worth, your negative equity position makes it hard to get approved for a replacement loan.


Is zero percent car financing a good deal?

No, there is usually a better option once you factor in all of the hidden costs of this type of finance.

You should talk to a car finance broker to find out all your options before you make a decision. Car finance brokers work for buyers, not dealers or lenders. They negotiate with lenders for a living and they know where the great deals are.


What credit score do you need to get a 0% car loan?

You will usually need a good credit score to qualify for a zero percent car loan (if you still want to go ahead despite the likely hidden costs we’ve mentioned).

You can check your credit score for free online with a credit reporting agency. These agencies compile your score based on your track record of paying back credit on time. The higher your score, the better. But if you do have a good credit score, you’ll be able to qualify for a low interest car loan anyway without any of the hidden costs we’ve flagged with zero interest car loans. A good car finance broker will be able to help you find a great deal.


What cars are offering zero percent financing?

You’re likely to have a more restricted choice of car models available to you under zero percent dealer financing . Dealers will usually restrict these loan offers to less popular, slow-moving, older or demo car models.


Other FAQS for zero interest car loans

What is a 0 APR?

‘APR’ is an acronym for ‘annual percentage rate’. ‘O APR’ is another way of saying ‘zero percent loan’.

Do you need a deposit for a zero percent car loan?

This depends on the policy of the lender, but many will require you to have a large deposit to qualify. And if you have a large deposit, you’ll likely qualify for a low interest car finance without any hidden costs. And that would usually be a better option.


What is a comparison rate?

A comparison rate includes the cost of interest plus any lender fees. Lenders must advertise their comparison rate on car loans in Australia to comply with consumer law. That’s why you’ll usually see two rates advertised on a loan – the interest rate and the comparison rate.

It’s possible for dealers to have a zero interest loan that has a comparison rate that’s higher than zero to reflect the fees they charge. Always look at the comparison rate when evaluating any car finance.


The bottom line

If a dealer is tempting or pressuring you into signing up for zero interest finance that’s only available for a ‘limited time’, make sure you read the fine print or get some professional advice from a car finance broker. They will almost always be able to find you a better deal.


How we can help

If you’re looking for a great deal on car finance, talk to one of our licensed and experienced brokers at Auto Car Loans. We’ll take the time to understand your situation so we can provide you with car finance options.

Don’t let yourself get talked into a zero interest car loan or any other finance arranged by a car dealer. If you do, the loan’s terms and conditions will inevitably favour the dealer and their finance company rather than you.

Simply call 1300 301 051 during business hours to speak with one of our experienced car finance brokers instead. We’ll save you time and hassle by helping you find you a loan from our panel of over 50 Australian lenders. We’ll also help you with your application so you can get it approved as quickly as possible.




DISCLAIMER : The thoughts and opinions conveyed on this website are those of the authors only and are of a general nature. This does not constitute financial or general advice to you from Auto Loans Group. You should seek your own independent advice from a professional which is specific to your circumstances before considering any of the items referred to in this article, including finance, insurance, and car buying.