When buying a car you may find that a lot of dealers offer new car loans at a 1% P.A. or even no interest car loans. The way no interest car loans work is pretty simple. Usually, you would buy your car at the advertised price at a dealership. After that, you’d make monthly repayments on the principal of the car without paying any interest.
Although this may sound like a really good deal, there are multiple things you should be aware of before committing to a no interest car loan. At Jacaranda Finance, we can’t provide no interest car loans. However, we can provide affordable car finance options of up to $35,000.
In the following guide, we’ll unpack how no interest car loans work, what to watch out for, and how our car loans might be a better fit for you.
If you find that your desired car is advertised with a no interest car loan then that could most likely be a sales tactic by the dealership. Although you won’t be paying interest on your car loan, you might find that you may not be saving much money compared to a regular car loan.
For example, the dealership could be charging you a much higher retail price for the car or charging additional fees. The higher retail price and additional fees will accumulate over the term of your loan. This may end up costing you the same amount as a car loan with interest.
This could also apply to car dealers offering 1% finance. Just like with a no interest car loan, 1% finance could result in you being charged additional costs that are greater than the costs of a car loan with interest.
Low interest car loans of 1% or less may be offered for a certain period only. What this means is after that, the loan could go back to its original high interest-rate. So, make sure you’re aware of any conditions before finalising anything with your dealer. The dealer could also require you to make a large lump sum payment at the end of the loan which is referred to as a balloon payment. This decreases the size of your monthly repayments, making them a lot more affordable. However, this can be more difficult to budget for in the long run.
This question depends on a few factors. A 1% or no interest car loan doesn’t necessarily cost less than a regular car loan with a higher interest rate. No interest car loans or 1% finance options may actually cost you the same amount as a regular car loan, if not greater. This is because they may come with additional fees or you may be paying more for the price of the car than what it’s worth elsewhere.
No interest offers usually require you to make a larger balloon payment towards the end of your car loan term. Although balloon payments reduce the cost of your monthly repayments, you will still need to budget your savings throughout the loan term to afford the large balloon payment sum at the end. Balloon payments can be tricky as you need to be prepared for the last large payment.
Failing to make a balloon payment, or any repayment beforehand, could result in your car getting repossessed. This would go on your credit report and affect your credit score, impacting your ability to get credit later on. So, while normal car loans usually require more interest, the repayments are consistent. This ensures the debt will be paid off in full by the end of the loan term, making it easier to budget for. Ultimately, all credit comes with risk. As a result, you may wish to speak with a qualified financial advisor before agreeing to anything.
Some car manufacturers could offer no interest car loan deals through their dealership. It’s much rarer to find a traditional lender offering a 1% or no interest car loan. In most cases, loan providers offering low or no interest terms may charge higher costs in other areas. So, it’s important to do your research before applying for no interest car loans
There are some benefits associated with no interest car loans that may work in your favour and suit your budget. These include:
Although there are a few benefits to a no interest car loan, there are also risks you need to consider. These risks include:
Before agreeing into any type of financial arrangement, make sure you shop around and compare different types of loan products. Although no interest car loans may seem like a great and affordable option, you may not end up saving as much money as you’d hope.
Just like any financial product, it’s very important to understand the terms and conditions of no interest car loans that you could be considering. Here are some key factors to keep in mind when looking at no interest car loans:
If you’ve been searching for an affordable car loan, look no further than Jacaranda Finance. We can provide car loans from $5,000 to $35,000 with 1 to 5 year terms. Although we can’t promise no interest on our loans, we will work with you to find a suitable repayment plan. At Jacaranda, we also believe in 100% transparency. So, we will always be upfront with our fees and costs from the outset.
For more general information on car loans, visit the Moneysmart website.
Young entrepreneur Daniel Wessels is the CEO and Founder of Jacaranda Finance. Although only in his early thirties, Wessels’ determination and adaptability has led him to successfully pioneer a range of other enterprises both here and abroad.Read More
Jacaranda is 100% online. So, we do not accept applications over-the-phone. However, our friendly team is more than happy to answer any questions you may have.