What are the conditions of the interest free car loan?

When you are struggling with finances but want to buy a used car or a new one, you can get what is called an interest free car loan. Under this scheme, you do not have to pay any cash upfront and this will give you enough time to save for the car and pay it afterwards. Therefore you can get the car that you want now and not incur any interest on the money borrowed.

If you respect the conditions of the contract, you will not face any problems. However if any part of the agreement is breached, you may face paying more than you bargained for. Let me explain – usually with an interest free car loan, you do not pay any interest on the amount you are borrowing for a set time, which could be something like 6 months. After this set time, the rate at which you will pay interest can be as high as 30% and the lender can charge this interest rate not from the end of the interest-free period but as far back as when you applied for the loan, that is, since Month 1.

Just to give you an idea, interest rates on credit cards are usually around 12% APR (Annual Percentage Rate). Therefore a rate of 30% on a car loan will cost you a small fortune and if you were already struggling financially, it will make things much more difficult for you.

You should therefore aim to repay the car loan within the set time that the lender has allocated to you so that you do not get any surprises afterwards. Set up a direct debit and pay a part of the loan each month and keep a record of all payments made to the lender. This will help in proving you paid your loan within the set time in your contract, should the lender claim otherwise. Without this proof, the lender may claim that you haven’t made the payments on time and you will be liable for the atrocious interest rate and other nasty surprises.

As long as you have read the small prints and asked for the conditions involved with the interest free car loan before signing anything, you just need to honour your part of the contract and enjoy the great offer that you are getting.