Please can someone explain 0% finance?

[fatsatsuma]

I know it basically means borrowing £ and paying 0 interest. But is that actually the full story?

Back story is that we need to replace our car which we've driven into the ground. We have little disposable income but some savings. I feel more comfortable taking the hit and paying outright for the car, as I can't believe that car manufacturers ever lend money for free.

But there are various 0% finance deals around and I know many people who feel they've done well with such deals. Is there any difference between paying the full sum outright from savings and using savings to pay back monthly if there is really no interest to pay?

Btw were planning to buy secondhand but replace after 2-3 years before car starts costing £££ which is what has happened to us before. But for the first time ever I'm wondering if buying a new car is better sense, if we can afford it.

there really is no interest so it's better to get the 0% deal & keep your savings - however little interest they pay these days it's still more than 0%

you can get 0% on nearly-new cars too, which is much better (lower depreciation)

\link{http://www.arnoldclark.com/nearly-new-cars/kia/cee%27d/\like these}

we have a Kia ceed on 0% finance, it's a really nice car (was 18 months old, 14K miles) & all Kias (I think) have a 7-year or 100,000 mile warranty

what size are you looking for?

\link{http://www.chapelhouse.co.uk/used-cars/\this dealer does 0% on lots of makes}

oh, just realised the deals at the first garage require a decent deposit initially, but then finance over 3 years; & with a Kia you'd still have the balance of the 7-year warranty to save towards the next one

the second garage is no deposit & finance over 5 years, not 3

IIRC the 0% finance deals are good if you have the funds to pay them off before the deal expires. My understanding of these type of deals is that although no interest is payable the interest calculation is worked from the day of purchase ie. on day 3 years and 1 day you are paying 3 yrs and 1 day of interest not just 1 day iyswim.

Thanks both of you - really helpful.

We're after a 7 seater, and having spent wayyy too much maintaining a car which kept breaking down, we're after something solid and reliable.

They are great if you are organised. You will get credit interest free until the interest free period expires. After that an extortionate rate will be charged and they won't remind you that the payment is due (often on the whole term), so you must make sure you know when it is and pay it in good time

Thank you. I'm feeling less stupid now.

Wanted to emphasise forward's point about knowing when the 0% period expires and making very sure that you pay any balance before you're clobbered with interest.

You really must find out (by getting a friend to make parallel enquiries) about other deals and discounts on offer.

Such deals can often be matched by discounts not available on a financed deal, so you'd be paying the same plus added risk of inadvertently ending up in an interest-paying period.

yes, that is very true - about the price being higher - I've been looking around this afternoon

but if it means you end up with a much newer car (but not new ) than you could otherwise afford, & it will cost you a lot less in repairs over the years you have it (as with the Kia 7-year-warranty), it could still be worthwhile

this thing about being clobbered with interest for the whole period:

when the financial institution fixes the payment dates, & takes the payments by direct debit, how likely is that to happen???

Sometimes that's not true MrsMagnolia, the dealer is targeted to sell the credit as well as the car, so depending on where they are against their target, they will sometimes offer a better deal on the car just to get the credit deal. The finance company pay them commission as an extra to the profit they make on the sale of the car.

"how likely is that to happen???"

Very likely. The DD payments are claimed every month for the year, three years, however long the 0% rate applies, and then they go up rapidly once it expires. A year is a long time and it's easy to forget. Notice of increased payments is not necessarily given... DDs can be variable quite legitimately... so you need to remind yourself to either pay off the balance or do something else before the big interest payments kick off.

You do need to be careful as sometimes they don't quite collect enough to pay it off in full and if you are late paying the balance by even one day then they will charge interest on the full three years. There is normally a fee as well, so not quite cost free. I was going to buy something on interest free credit, but there was a £25 fee so it worked out cheaper in the long run just buying it in cash, obviously with a car the fee would be a smaller % of the cost, but still worth bearing in mind.

The dealer matched an online price for our car and we managed to negotiate some extras, even with the finance deal, so worth doing your homework. They are desperate to sell so negotiate hard and be prepared to walk away. We were about to drive away when the dealer came sprinting across the carpark to agree to the deal we proposed.

Thanks to everyone who has posted their helpful comments. It's really helped me think through the interest free concept. I'm still not sure it's right for us but I feel much better informed now. It's such a huge expense and we really need to get it right

As I have the attention of some car buying experts, can I pick your brains a bit further?
We've been really unlucky with our current car. We've had it 5 years, it was 3 years old when we bought it with a fairly low mileage, we do a slightly above average mileage per year, and we have spent as much on repairing the car as we did to buy it
This has led us to decide a) never to buy another French car and b) to re-think how long we keep our next car before replacing it.
So here's the question:
In your experience, if paying outright for a car, is it it more economical to aim to replace it after 3 years or so, or would we do better to keep it for much longer and therefore get much less in resale value.
I realize it will depend on the make of car and how we use it, but would really value general thoughts. Thank you.

Fatsatuma the only advice I can give you is passed on from my fantastic mobile mechanic.

The older galaxy/alhambra/sharran are all the same engine made in same factory, chassis etc just the interiors that are different. He said a diesel manual will last for ever easy up to 150k mileage and to avoid autmatics and petrols like the plague. Not sure about the newer models but again they may well be the same engines etc

Thank you RandomMess. One of the models you mention is on our list.

Personally if I have to buy a people carrier again I will def go for sliding rear doors if at all possible...

I used to have an ancient espace and for some reason it was much easier to park, I prefered the fact the the rear seats could go anywhere and that the headrests squashed down and did not have to be removed when taking the seats out of the car.

I found the whole buying a car thing very stressful I hope this one carries on for a long time to come!

I went for higher than avg mileage as we do few miles, I was offered one with immaculate bodywork but declined as we have a residents car park and sure enough in tesco and the like it's got a few more car opening dents and scratches than it started off with!

Absolutely never buy a french car.

No French or Italian cars. If you're not bothered about looks then I think then I think cars from Japan are far more reliable than european made and cheaper to buy in the first place.

We are drawn to the sharan because of VWs reliability. I do like the sliding doors too, and the general quality and comfort of the interior. We do a lot of driving and camp so plenty of space is important, and we have 2 teenagers and a younger DC so 7 seats handy.