0% Finance Car Finance

Zero Percent Car Finance and Low Rate Finance deals are being offered by an ever increasing number of car dealers – Is it really as good as it sounds?

There’s nothing like the smell of a new car! In fact, figures show Australians bought a record number of new cars in 2015, eclipsing 1.1 million sales for the fourth year running.


There are a number of ways to finance a car. In recent years we’ve frequently seen zero percent finance or low percent car finance advertised. Many people find this an enticing way to purchase their next new motor vehicle.

But have you heard the old saying ‘you don’t get anything for FREE’? Well the reality is – you don’t! So who is really paying for you to have an interest free car loan? You guessed it … YOU ARE!

How is the interest hidden?

In today’s new car market Zero Percent Car Finance or Low Rate Finance deals are being offered by car dealers to suck you in. Before you rush out and sign on the dotted line, it’s important to understand what is happening behind the scenes with these low rate finance packages.

Firstly, there is no doubt the interest rate being advertised to finance the vehicle purchase is legitimate. But, the question is – How are they able to offer this rate? These Zero Percent Car Finance offers are typically part of what the industry calls a ‘subvention‘ finance program as the interest rate for the finance package is being subsidised by the car dealer or manufacturer out of the profit made on the sale of the car.


How does Zero Percent Car Finance work?

Let’s look at a simple example to illustrate how subvention works.

Assume you purchase a new $35,000 car which is being sold in conjunction with subvention finance at an interest rate of 1 .9%. The loan term is 48 months with a nil residual at the end of the contract. (normally you are not able to change these terms)

Depending on the lender who is providing the finance, the ‘subvented’ amount could be between $2,500 and $2,900. and so, once the transaction has been finalised, the car dealer or manufacturer must ‘pay’ or reimburse the subvented amount to the lender so they still make enough profit on the finance contract – the finance company and car dealer don’t want to be out of pocket just to sell you a car….

Ever noticed a car dealer is unlikely

to discount the price of a car being

sold under zero percent car finance or low interest finance?’

It is now clear the dealer needs to make a larger margin on the car to be able to pay the subvented amount to the lender and still maintain their normal margin.

What does this mean for you?

it means you will potentially be paying a premium on the price of the car just to secure a low rate on the finance

Chances are you could be out of pocket – there for you need to negotiate on the price of the car first excluding any Zero Percent Car Finance offer and you will inevitably get a far better price on the car. if you need car finance as about that second.

  • Hers a Tip – Negotiate towards the end of a month and you are likely to get a cheaper price as the salesperson will be keen to get his sales target to get his bonus.

Remember: The higher the purchase price of the car, the more you will pay for items such as GST, stamp duty and luxury car tax (if applicable).


What are my other options?

A more prudent approach is to negotiate on the basis of a cash sale with the car dealer leaving the low interest rate finance offer out of the equation. It is not unrealistic to obtain a discount of 8% to 10% off the asking price if the sale is not subject to a subvented finance arrangement.

We often find once a discounted purchase price has been negotiated, those clients who then arrange finance through us at ‘normal’ market rates typically end up paying lower monthly repayments (thus lower total repayments) over the term of the finance contract than they would through obtaining subvention finance.

Why not just pay cash?

Well you could but you certainly won’t get any return on your investment. Could you perhaps better invest your cash elsewhere?

At the end of the day the old saying ‘there is no such thing as a free lunch’ certainly applies when it comes to zero or low rate car finance deals.

Tips to save you money:

  1. Negotiate on the price of the car first
  2. Consider using a car buying service – we can give you a recommendation
  3. Then agree to get a finance quote
  4. GET A SECOND OPINION every time – Contact Noble today for a Quote

I hope you find this helpful


David Johnson

(View my profile here)

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