0% car finance vs paying cash
If the cash price is identical and the finance is genuinely free, both routes pay the same nominal amount. Finance can still be economically better when retained cash earns interest.
Result under these assumptions: both routes pay £30,000 for the car. If retained cash earns 4% a year after tax while monthly payments are withdrawn, the finance route leaves approximately £2,668 of additional cash after four years.
Assumptions
Two different cost views
| Measure | Cash | 0% finance |
|---|---|---|
| Total money paid | £30,000 today | £625 × 48 = £30,000 |
| Finance interest and fees | £0 | £0 |
| Basic estimated car cost | Equal, if retained car value is equal | Equal, if retained car value is equal |
| Cash-return effect at 4% | Cash is spent immediately | About £2,668 remains after funding payments |
Why the advantage is not £30,000 earning 4% for four years
The retained £30,000 falls every month as the £625 payment is made. Only the cash still held continues earning a return. The calculator follows the timing of every payment rather than adding four years of interest to the whole purchase price.
At a 0% cash return, the routes tie on this measure. If finance includes a fee, removes a cash discount or charges interest, those costs must be compared with the return on retained cash.
Check whether 0% really means no extra cost
- Compare the cash price and finance price.
- Check whether finance replaces a manufacturer rebate or discount.
- Include arrangement, purchase and administration fees.
- Use a realistic after-tax return on accessible cash—not an uncertain investment forecast.
Test the return you could actually earn
Enter the cash price, finance payment and optional after-tax annual return. The calculator keeps basic car cost separate from the cash-return comparison.
Compare cash and finance →Continue reading
Published and reviewed September 2026 · Illustrative educational example