Buying a car with an interest-free loan

Watch out for the small print!

Buying a car with an interest-free loan

Watch out for the small print!

Can you really buy a car without paying any interest?

You've made up your mind. A new car has caught your eye, and you've decided to buy it. That's great, but one question remains: how are you going to pay for it?

Some car dealerships are straight in with an answer and are hoping to win customers over with a tempting offer: ‘Buy your car interest-free’. If it sounds too good to be true, it just might be. It never hurts to read over the terms and conditions…

Buying a car on finance?

If you don't have the cash funds to cover the full price of your new car or you want to hold on to that nest egg for a little while longer, then a car loan is a great solution.

A low-cost car loan would obviously be the preferred option, because why wouldn’t it be? That being said, you should exercise caution if a dealership allows you to pay the car off at 0% interest. You should watch out for potential drawbacks which could leave you paying more than you would for a standard car loan.

Car loan without interest

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If you want to buy a car without paying interest, you should always bear certain questions in mind:

  • How much is the down payment? This can often be as much as 30% of the purchase price.
  • Do I get any extra discounts? It’s highly likely that you're getting little or no discount whatsoever. Bargaining for a handsome discount on your new car will usually save you more money than a 0% rate would save you in interest.
  • Is there a larger final payment? These types of loans are often shorter in length, which means that the last monthly instalment is a pretty hefty sum. They're also known as 'balloon' loans. If you don’t make the last payment (the 'balloon'), the car dealer could instead decide to take the car back. But beware: if the car is no longer in good condition, there is a chance that your car will be refused and you’ll have to pay the remaining amount anyway.
  • Is an extended guarantee involved? Customers are sometimes required to take an extended guarantee costing somewhere between 500 and 800 euros, and this usually isn’t mentioned in the adverts.
  • How much exactly do I pay each month? Don't forget to factor in additional costs such as the credit origination fee and additional compulsory insurance.
  • Who owns the car? It may be the case that you don’t actually own the car until it's been fully paid off. This means that, if you want to sell the car, you first have to get permission from the dealer.
  • Will I be getting a fair trade-in deal on my current car? It could be that you also want to factor your present car into the loan negotiations. If you do, make sure that the dealer doesn't undervalue it. This can be a sly trick that a dealer might try in order to squeeze the most financial benefit out of a zero-interest instalment plan.

All of this means that it’s always worth looking at the small print to make sure you know all the terms and conditions before taking out an interest-free car loan.


Compare car loans

Anyone offering credit to individuals is required to disclose the APR or 'Annual Percentage Rate of charge', including car dealers. The APR includes not only the interest you pay on your loan, but also all other costs. The APR is the overall picture. If you want to look at different car loans, this is the best metric to compare.

A standard car loan means you can at least be sure there will be no surprises. You know exactly how much you're going to pay each month right from the outset and the fixed interest rate doesn’t budge an inch throughout the full term of your car loan. That means you should always consider whether it’s really worth sacrificing your peace of mind for what little you might stand to gain.