The zero percent car loan: A car buyer’s dream or a deal too good to be true?
When shopping for a new car you may be surprised to see offers from the dealer advertising new car loans at a 0% p.a. interest rate. At first glance, this offer is exactly as it appears, you purchase the car at the price given and then make monthly repayments on the principal of the car without any interest being applied to it. Once the principal balance is completely paid, the car is yours, free and clear from any debt.
Where can I obtain a 0% car loan?
In order to entice new business, car manufacturers offer the no interest deals through their dealerships. This type of financing is commonly referred to as sub-venting and means that the manufacturer is actually going to be paying the interest to the lender. Somewhere they are going to be making that money back, usually in the form of an inflated overall price for the automobile.
Alternatives to 0% dealer finance
If you have compared a range of dealer 0% car loans, and want to see how they stack up to a new car loan, use the comparison table below. If you would like to find out more about any of the loans, click the "Go to site" button
Rates last updated September 23rd, 2014
Interest Rate (p.a.)
Comparison Rate (p.a.)
Min Loan Amount
Loan Term
Application Fee
Gateway CU Car Loan - New Car
Apply for the Gateway Credit Union Car Loan and enjoy the competitive rates and fees with the flexible repayment options.
From 7.69% (variable)
7.90% Info
$3,000
1 to 7 years
$149
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NRMA Car Loan
A fixed rate car loan with flexible payment options and no ongoing fees.
From 7.25% (fixed)
7.76% Info
$5,000
1 to 7 years
$301.44
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Westpac Car Loan
Apply for the Westpac Car Loan and enjoy a very competitive rates.
From 9.99% (fixed)
11.03% Info
$10,000
1 to 7 years
$250
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ANZ Online Secured Car Loan
A secured car loan with a fixed rate interest.
From 8.69% (fixed)
9.54% Info
$7,500
1 to 7 years
$350
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RACV Car Loans
Enjoy this fixed rate new car loan offer from RACV. No ongoing fees.
From 7.25% (fixed)
7.76% Info
$5,000
1 to 7 years
$357.90
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IMB New Car Personal Loan
A low interest rate car loan from IMB
From 7.25% (fixed)
7.50% Info
$2,000
1 to 7 years
$175
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Bank of Melbourne Secured Car Loan
A low fixed rate car loan offer from Bank of Melbourne.
From 9.99% (fixed)
10.88% Info
$3,000
1 to 5 years
$195
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BankSA Fixed Rate Car Loan
Apply for a fixed rate car loan from multi-award winning BankSA
From 9.99% (fixed)
10.88% Info
$3,000
1 to 7 years
$195
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NAB Car Loan
Apply for NAB Car loan and enjoy a low interest rate.
From 12.99% (variable)
13.86% Info
$5,000
1 to 7 years
$150
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Aussie Car Loan
A Car loan offer from Aussie with a low establishment fee.
From 12.99% (fixed)
13.94% Info
$3,000
1 to 7 years
$199
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Is a 0% car loan really a good option?
There are a number of variables to take into consideration when discussing a 0% p.a. financing plan with your dealer. This type of campaign being run by many of the top Australian car dealers is more of a ploy to get buyers inside of the showroom. Once inside, the salespeople have a better opportunity to make a sale on a new car, whether it is with that financing deal or not.
Since the deal is 0%, you could have no chance in negotiating the price of the car. Expect to pay the sticker price if you are getting 0% p.a. interest on the loan. Also, be wary if you are trading in a vehicle. One of the ways the manufacturer will attempt to recoup the money they are paying the lender is by undervaluing the price of your trade in vehicle.
The last thing to consider is the terms of the loan. Often you will be required to make a large upfront payment and pay off the loan in a shorter time period than you would be a typical car loan. This means that despite the no interest charges, you are still facing large monthly.
Some pitfalls that you might fall into when opting for a 0% car loan
Inflated cost. The price of the vehicle is almost certainly going to be higher than if you were to buy it with traditional financing. You can check this first by searching online for the average price of the car without the 0% p.a. interest before going to the dealership.
Large deposit. You are most likely going to be required to provide a significant amount of money down when you enter into the terms for this type of loan.
Credit history. Typically, only borrowers with a pristine credit history will be considered for this type of automobile financing.
About your credit history
Fees. Some of the manufacturers are hiding the cost of interest in monthly maintenance fees. Still do the math. In some cases this will equal a very low rate loan, and still one that could be considered.
High repayments. The manufacturer wants these types of loans paid off fast and will usually limit your options for terms. This will result in a higher monthly repayment for you.
No negotiating. There is not going to be any negotiating the price of the car when you are getting this type of deal.
Trade in value. Expect that the car you use as a trade in will be drastically undervalued. In this scenario, you are better off to take the loan as is and sell your old car independently to get a fair price.
What are some alternatives to a 0% car loan?
Before you lock yourself into this type of arrangement through the dealer, investigate other types of car loans. Both banks and non bank lenders will offer personal loans for a new car that may save you more money than with the zero percent interest dealer offer. Not only will you be able to shop around to find a competitive rate, you will have more flexibility in the terms.
Even non bank lenders offer car loans to meet different needs, such as low doc loans and financing for borrowers who have a less than stellar credit history. These types of institutions are definitely worth looking into before you lock yourself into an offer with the dealer that looks great from the outside, but is not necessarily financially beneficial once you examine the inside.
The only obvious benefit to this type of financing is that there is no interest added to the price of the car. If you know that you only need a short term loan to pay it off, then this type of financing may be something to consider.
What is next?
New Car Loans
Compare Used Car Loans
Guide to Car Finance
How to Choose the Right Car Loan
The post Is a 0% Car Loan Really A Good Option? appeared first on finder.com.au.