In recent years, many car manufacturers and dealerships have promoted 0% interest or 0% comparison rate offers to attract buyers. These deals sound incredible — who wouldn’t want an interest-free car loan?

But once you step into the dealership, the story often changes.

This type of offer is known as subvented finance, and while it can occasionally suit certain buyers, it often comes with restrictions, inflated vehicle prices, and conditions that may make the deal far less attractive than it seems.

Here’s what you need to know:

What Is Subvented Finance?

Subvented finance is a marketing strategy where the manufacturer subsidises (pays) the interest cost on your loan.
This means:

  • The lender still charges interest

  • The manufacturer covers that interest cost

  • The cost is offset by reducing discounts or increasing the vehicle’s price

In other words, the dealership must retain enough profit in the sale price to fund the interest subsidy.

This is why 0% finance vehicles are often not negotiable, or only lightly negotiable.
The “free finance” is baked into the higher sale price.

How Dealerships Use 0% Offers to Drive Sales

0% comparison rate campaigns are designed to get you into the dealership, not necessarily to give you the cheapest deal.

Inside the dealership:

  • Pricing differences between “cash price” vs “0% finance price” become clear

  • Salespeople limit information over the phone to push in-person visits

  • Emotional momentum (test drive, excitement, time pressure) encourages quick decisions

  • The dealership has multiple opportunities to upsell:

    • Paint protection

    • Window tint

    • Warranty extensions

    • Insurance products

    • Aftermarket accessories

Under today’s regulations, dealerships must not engage in misleading conduct — but they are not required to tell you the best deal, only to present accurate information when asked.

Trade-Ins Are Often Used to Tip the Scales

One of the easiest ways a dealership can regain lost margin is through your trade-in.

Common tactics include:

  • Offering below-market trade value

  • Refusing to negotiate on the new-car price because “the finance is free”

  • Inflating the trade difference to compensate for the subsidised interest

Always enter the dealership with a realistic trade appraisal from at least two external sources (e.g., Carsales Instant Offer, Redbook, or independent wholesalers).

Restrictions and Conditions You’ll Commonly See

Dealership 0% finance offers today often include one or more of the following:

✔ Short Loan Terms

Usually 36 months — reducing the manufacturer’s interest subsidy.

✔ Larger Required Deposits

You may need to contribute 10–30% upfront.

✔ Limited Vehicle Selection

Often only applies to specific models, trims, or run-out stock.

✔ No Negotiation on Price

The finance discount replaces your ability to negotiate the car price.

Why Many Buyers Don’t Actually Benefit

Even in 2025, most 0% finance offers are cheaper only on paper, because:

  • The car price is inflated

  • Trade-ins are undervalued

  • Loan terms are restrictive

  • Add-ons increase total cost

  • You lose the freedom to source independent finance at better terms

A higher interest rate on a cheaper vehicle can still result in a lower overall cost.

Example: Why 0% Isn’t Always the Best Deal

Dealership Offer (Subvented Finance)

  • Car price: $30,000

  • Term: 36 months

  • Rate: 0% p.a.

  • Total cost: $30,000

Negotiated Market Price + Standard Finance

  • Car price: $26,000

  • Term: 36 months

  • Rate: 6.5% p.a. (typical for excellent credit)

  • Total cost including fees: ≈ $28,700–$29,000

Conclusion:
Even with interest, buying the car at the cheaper price can cost less overall.

Modern Consumer Protections (2024–2025 Updates)

Today’s rules provide stronger safeguards than when this article was originally written:

1. ASIC Responsible Lending Obligations

Even on 0% finance, the dealership’s finance arm must:

  • Assess affordability

  • Verify income and expenses

  • Ensure no substantial hardship is caused

2. Anti-hawking regulations (2021+)

Salespeople cannot “hard sell” add-on insurance products without following strict compliance steps.

3. Comparison rate requirements

Any advertised rate must include:

  • Base interest rate

  • Mandatory fees

This prevents misleading “0% interest” ads without full disclosure.

4. Design and Distribution Obligations (DDO)

Dealers must ensure finance products are appropriate for the target market and not mis-sold.

How to Protect Yourself Before Accepting a 0% Finance Deal

Before signing anything:

✔ Get a realistic sale price

Ask for the “cash drive-away price” for comparison.

✔ Get a proper valuation of your trade-in

Do not rely solely on the dealership.

✔ Compare finance options separately

Independent finance brokers (like Sierra Car Loans) can quote you without affecting your credit score.

✔ Compare repayments side-by-side

Use the same:

  • Deposit

  • Term

  • Vehicle

  • Fees

✔ Don’t rush

Dealership urgency is part of the strategy.

Is 0% Finance Ever a Good Deal?

Yes — but only when:

  • You would have purchased the car at the listed price anyway

  • The trade-in value offered is fair

  • The restrictions don’t affect your budget

  • You have compared all alternatives and the total cost is genuinely lower

For many buyers, however, the cheapest long-term option is often:

  • A better negotiated sale price, plus

  • A competitive, flexible finance product
    sourced independently of the dealership.