So, you’re in the market for a new ride and cruised excitedly down the main street. Amongst a sea of dealership banners of used & new car loans, one caught your keen eye, “0% Finance – see us today!” You didn’t go in, not yet anyway. Good on you, best prepared.

“There’s no such thing as a free lunch.” – (Milton Freedman)

A few basic truths:


  • Auto manufacturers and dealers need to move their stock at a decent pace to lock in profits and avoid redundancy
  • Lenders need to write loans to make money
  • Consumers love a bargain
  • Smart marketing gets good results

Combine these elements and you get the Subvented Lease, a fancy name for the zero-percent-finance deal. This type of offer is normally made by manufacturers on models that are not selling well. They make it more attractive by dropping interest rates, amongst other methods (Investopedia).

What’s in the 0% deal for them?

Feet through the door – you rush to the showroom to learn more. Once there, they work their magic: upsell to more expensive models and on-sell the peripherals such as extended warranties, insurance and upgrades, to name a few.

Clearing of stock – if nothing else, at least the less popular vehicles find new homes. From their point of view, a smaller profit beats obsolescence, doesn’t it? On special deals it is common practice for the seller-chain to divvy up the plusses and minuses, also to cross-subsidise each other.

What’s in it for you?

  • Perhaps a really good deal. Maybe not.
  • To find out, you’ll need to dig deeper.

The fine print

To protect their reduced margin in a special deal, sellers generally have strict conditions:

  • Limited choice – the offering may not be available on the car you really want. In that case, think it over and decide carefully to avoid remorse later on.
  • Shorter loan period – generally 24-36 months, not 48 months. Consider the instalment for affordability, including the residual balloon payment.
  • Inflexibility – the agreement might be “cast in stone,” allowing for no variation whatsoever. Example: no early settlement allowed.

Do smart homework

  • An informed choice would require diligence and effort on your behalf. This will be rewarded by peace of mind afterwards.
  • Surely a zero-interest deal is hard to beat, one would think. Maybe so, but only if all other factors are equal. It is therefore crucial to “compare apples with apples.”
  • For your vehicle of choice, it is suggested that you obtain itemised quotes from different dealerships, also the ones where normal loan interest and conditions apply.
  • Ensure that you request the same loan period on all of them e.g. 24 months or 36 months.

When comparing the quotes, you will notice differences in:

  • the vehicle purchase price
  • the delivery fees
  • the residual value of the quoted vehicle
  • the finance rate
  • the trade-in value of your old vehicle

Now, this is exactly where the merchants have room to manoeuvre by substituting numbers between categories, all depending on their specific marketing objectives.

Example: the special deal might reflect a finance rate of 0%, but, compared to the various quotes, it may show a higher vehicle purchase price, increased delivery fees and residual value, perhaps also a lower trade-in value.

To the untrained eye, a meaningful comparison might appear daunting at first. However, rest assured, the true test is actually not all that complicated.

Regardless of how the numbers are sliced, diced and packaged, the deal with the smallest total repayment amount over the full term is the true winner. It might not be the 0% deal, but if it is, then great. Alternatively, your homework paid off handsomely indeed.

When in doubt, it is highly recommended that you consult a licensed car loan expert, credit professional or independent vehicle finance provider before signing on the dotted line.