The truth about zero per cent car loans

The truth about zero per cent car loans

There’s not much that can top slipping into a brand new car – the shiny paintwork, the feel of a new engine turning over, that new car smell… But it pays to be calm when you’re ready to sign on the dotted line in case you’re seduced by a finance deal that’s not nearly as good as it may seem.

You know how people say, ‘If it looks too good to be true it probably is’? There has never been a better example in the finance world than car dealerships offering zero per cent loans. Sure, on the surface, it looks like a great idea, but in reality it may not save you nearly as much money as you might think.

Why do they do it?

That’s easy – dealers offer these deals to get you through the door. They’re relying on you being caught up in the excitement of the test drive and buying on the spot. You’ll also notice that the zero per cent finance is often offered ‘for a limited time only’ and might only apply to certain models of car.

What’s the catch?

Well, the finance company needs to be paid somewhere along the line – in this instance, the car manufacturer foots the interest bill in what’s known as sub-vented finance. Under a sub-vented finance arrangement, the dealer pays the interest from the profit they make from the sale of the car. This of course, passes the cost down the line to you. Generally, you’ll be charged the full retail purchase price for the car, which you can’t negotiate down (as you might’ve been able to do if you’ve organised your own loan). You may also get a lower trade-in amount for your current car, or the zero percent finance period might only be for a short period like three years, at the end of which the dealer will ‘kindly’ offer a you a deal to refinance at a much higher interest rate.

Be prepared

If you’re serious about buying a new car, it can be worth getting a pre-approved loan. But even if you’re not that organised, you need to do the sums. For example, if you buy a $25,000 car at zero per cent across 36 months, you may find that you’re still paying more than if you knocked the asking price down to $22,000 at seven per cent spread out over the same amount of time. Do a little research to find out what a fair trade-in amount is for your current vehicle and ask whether you’ll be penalised if you choose to make extra payments or pay out the loan early.

Walk away, Renee

That deal will still be available if you take a couple of days to make up your mind – ultimately, the dealer wants to sell you a car, however you choose to finance it. Talk about a loan with your bank, do the sums then go back and sign the contract for whatever deal gets you the best price over the life of the loan.

This information is general in nature. It does not take into account your personal needs and financial situation and you should consider what is appropriate for you. For further information in relation to our Car Loan products and current interest rates and terms, go to

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