You may have noticed car companies and dealerships from time to time advertising low interest or 0% interest rates for new car finance.

While this looks like a great deal on the surface, the catch is that there can often be hidden extras and disadvantages from taking out these loans. You could end up paying more for your new car than if you did just a little shopping around and financed it yourself through an independent broker.

Why you shouldn’t take out a 0% car loan

Nothing ever really comes for free. If the car dealership is not charging interest on their car finance they’ll be making up the difference in other ways. There’s actually a long list of things dealerships will do when they offer 0% interest on finance that you should know about;

The Price – If you’re buying a car through a dealership’s 0% finance they are not likely to move on the price, so you’ll be paying full retail. If your finance is coming from somewhere else or you have a pre-approved loan you can often negotiate the price down, sometimes by thousands of dollars.

Trade-in Value – If you’re trading in your vehicle as part of the sale you’re likely to be offered a much lower price.

Loan Flexibility – The 0% finance loans don’t leave you much room to move, so you’re not likely to have options such as the term of the loan, balloon payments, or hidden loan fees on things paying the loan out early.

Whatever money you save by not paying interest on the loan you are still likely to pay through an inflated vehicle price, loan fees and lack of extras available in the negotiation.

Do some research & save money on your car loan

If you do some research before you head to the dealership you can often save some money, both on the sale and your trade-in.

Shop around for some car finance quotes from brokers (such as before going into the showroom so you have some idea of what 0% interest really saves you. You can even organise a pre-approved loan before you walk into the dealership so you can negotiate the price of the vehicle on your terms, possibly saving thousands of dollars.

Remember; there’s no point in saving $2,000 in interest if it means you’ll have to pay $5,000 more for the car.

If you are planning on trading in your existing vehicle, make sure you work out what a fair price is before talking to the dealer. It will only take half an hour to find out what the market price and resale value is, once again putting you in a much better position for negotiating the trade-in.

There’s plenty of information on what to consider when buying a car in our Beginner’s Guide to Car Shopping blog series.

If you’d like to talk to us about car finance you can call on 1300 889 669 or even apply online today