A 0% car loan is a financing deal that can save you hundreds if not thousands of dollars on your vehicle purchase. Some dealerships offer such financing deals to entice buyers. That said, 0% is not available everywhere and to everyone. Read on to find out more about 0% car financing in Canada, and the eligibility requirements needed to qualify.
Key Points
- Zero percent car financing means there is no interest charged on the loan.
- While a 0% financing deal may sound appealing, there may be caveats that come with it, including more restrictions and stricter eligibility requirements.
- Car dealerships tend to be the only source for 0% car financing, as lenders have little incentive to offer such deals.
What Is 0% Car Financing?
Zero percent car financing allows consumers to take out a car loan to finance the purchase of a vehicle with no interest charged. That means the entire portion of your car loan payments goes towards the purchase price, and not interest, saving you thousands of dollars over the life of the loan.
It should be noted that only those with excellent credit are typically able to get approved for this type of financing.
Difference Between 0% Financing Vs. Cash Rebate
Some dealerships may offer a cash rebate as an incentive to encourage consumers to buy their cars. Before you choose a cash rebate over 0% financing, or vice versa, it’s important to crunch some numbers to see where you’ll save the most.
To illustrate the difference between 0% financing and a cash rebate, let’s say you want to buy a car for $40,000. One dealership is offering a financing rate of 8% and a cash rebate of $6,000, while another offers 0% financing, but no cash rebate.
Assuming a 60-month loan term, the following chart compares the costs between the two deals:
| 0% Financing/No Cash Rebate | 8% Interest With $6,000 Cash Rebate | |
| Car Loan Amount | $40,000 | $34,000 ($40,000 – $6,000) |
| Interest Rate | 0% | 8% |
| Term (months) | 60 | 60 |
| Monthly Payment | $667 | $689.40 |
| Total Interest | $0 | $7,363.84 |
| Total Cost | $40,000 | $41,363.84 |
As you can see from this example, you’d be paying over $1,300 more overall with the cash rebate option. However, in other circumstances, the cash rebate option might work better, depending on the rebate amount, the interest rate, and the loan term.
Ultimately, the cash rebate will reduce the amount of interest you pay, as well as how much you pay in taxes on the total amount financed.
Where Can You Get 0% Financing On Cars In Canada?
A 0% car loan is only offered by dealerships, and usually not with banks and other lenders. Generally, car dealerships offer 0% car financing as a way to sell more vehicles and make room for new inventory. This is why dealerships are one of the only places that offer this type of financing.
Banks and credit unions have nothing to gain from such financing, which is why they don’t typically offer it. They have no inventory to sell, and therefore no benefits to gain from offering loans with zero interest. Lenders make money from the interest they charge on loans, so unless the lender is associated with the car manufacturers themselves, they’re not likely to offer such a deal.
How To Qualify For 0% Financing On A Car?
Even if you can find a dealer that offers 0% car financing, getting approved for such a program might not be so simple. As mentioned, dealerships typically only reserve 0% car financing for consumers with excellent credit. To qualify for this type of financing, you’ll need to meet strict loan criteria.
To qualify for 0% financing on a car purchase, consider the following:
Check Your Credit Score
To see if you’d be eligible for 0% car financing, you’ll want to first check your credit score. You can do this for free with the credit bureaus or with several online third-party resources, like CompareHub from Loans Canada.
Shop Around
Comparison shop with different dealerships to see how the ticket prices for the car you want vary. You could potentially save a great deal of money by taking some time to see what different dealers offer for the same vehicle. You should also shop around with different lenders to see what types of car loan offers are available and see if any offer 0% financing.
Get Pre-Approved
When you’re ready to visit a dealership, you’ll want to bring along your pre-approval letter to give you more bargaining power with the car dealer. If you can show that you’re creditworthy, you may stand a better chance of securing 0% financing, or at least a low rate.
Negotiate
Haggle with your car dealer to get the best possible deal on your car loan. If you can’t get the rate down low enough for your comfort level, there are other options available.
Advantages Of 0% Car Financing In Canada
There are several perks that come with 0% car financing in Canada:
0% Interest
The greatest benefit of 0% car financing is the fact that you won’t have to pay interest. Essentially, you’re able to borrow money for free. This can help you save thousands of dollars over the life of the loan.
Faster Repayment
With no interest on the loan, you can pay off your debt in a shorter period of time and be loan-free sooner.
Upgrade Your Car
With no interest to pay on your car loan, you can use the money you’re saving on interest and put it towards the purchase of a more expensive vehicle that you otherwise wouldn’t be able to afford. Or, you can use the saved money to upgrade your vehicle with extra features, like heated seats or a leather interior.
Disadvantages Of 0% Financing In Canada
Along with the benefits of 0% financing are certain drawbacks to consider:
Only Available From Car Dealers
As mentioned, banks and other lenders don’t offer 0% financing. You’ll only find these deals at car dealerships.
More Restrictions
Car dealerships may only offer 0% financing on vehicles that they’re trying to get rid of, and not necessarily on new models that are coming out in the new year. You may also face limitations when it comes to the loan term, as these types of loans usually come with shorter term lengths.
Strict Eligibility Requirements
Only consumers with excellent credit can get approved for 0% financing. If you have poor credit, you’ll have a tough time qualifying for a no-interest loan.
Higher Monthly Payments
Since 0% financing loan terms are shorter than the average car loan, your monthly payments may be high. This can make it difficult to fit within your budget.
Limited To Part Of Your Loan Term
The 0% rate may only apply to a portion of the loan amount or only for a limited period of time. Be sure to read the fine print on your loan.
Not Available On Used Cars
A 0% car loan is typically used by dealerships as a promotional offering on new vehicles. If you’re looking to buy a used vehicle, you likely won’t find anything close to 0% financing.
Things To Watch Out For With 0% Car Financing
A 0% car financing deal may sound enticing, but be sure to watch out for the following red flags:
Guaranteed Approval
Lenders who promise approval for 0% car financing without reviewing your financial profile or checking your credit health should be avoided. Legitimate lenders will at least conduct some level of review of your financial and credit profile before approving you for a loan.
Sky-High Prices
Look out for lenders that offer 0% financing on vehicles that are priced much higher than other dealerships in the area. These lenders and dealers are likely trying to make a quick profit by charging you more than the fair market value of the vehicle.
Short Promotional Periods
Watch out for deals for zero interest financing that are only good for a short introductory period. Once that time frame expires, you may be stuck paying a very high interest rate halfway through the loan term.
Tips On Securing The Best Car Financing Deals
To get a good deal on car financing, consider the following tips:
Boost Your Credit Score
One of the main requirements for 0% interest and other financing options on a car loan is having good to excellent credit. As such, taking some time to improve it is one of the best ways to help you qualify for a great car financing deal in the future.
Get Pre-Approved
Getting pre-approved for a car loan will give you a clear idea of what you can afford. It can also improve your odds of securing a great loan product that fits comfortably within your budget. Plus, a pre-approval letter will save you plenty of time and hassle by helping you focus only on vehicles you can afford.
Buy Used
Buying a used vehicle instead of a new one can help you save a few hundred to a few thousand dollars, depending on the car model, market demand, and condition. Many dealerships not only offer great prices on their used models, but they may also have good financing options at affordable rates to offer. Plus, these used cars are typically serviced and certified, which is not always the case when you’re buying from a private seller.
Car Seasons
You may notice that dealers often advertise deals and promotions at specific times of the year. For example, it’s common to see discounts near the end of the year, at the beginning of summer, or during the off-season for certain types of vehicles, such as convertibles and sports cars.
Final Thoughts
If you can get a 0% car financing deal, it may be worth seriously considering, as long as you read the fine print and make sure you’re not overpaying for the vehicle. If everything checks out, you can essentially borrow a few thousand bucks for free to buy your next car.
