0% Car Financing In Canada

0% Car Financing In Canada

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated May 25, 2022

A zero percent car loan is a financing deal that can save you hundreds if not thousands of dollars on your car. Many dealerships offer such financing deals to those who have great credit and meet other eligibility requirements. If you’re thinking of applying for a 0% financing deal, find out everything you need to know about a no-interest car loan. 

What Is 0% Car Financing?

0% 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.

It should be noted that only those with excellent credit are typically able to get approved for this type of financing. 

Difference Between 0% Finance 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. 

For instance, let’s say you want to buy a car that costs $40,000. One dealership is offering a financing rate of 8% and a cash rebate of $6,000, while another is offering 0% financing, but no cash rebate.

Which one of the two would you save the most with, assuming you have a 60-month (5-year) loan term? The chart below compares the costs between the two:

0% Financing$6,000 Cash Rebate
Car Loan Amount$40,000$34,000 (40,000-6,000)
Interest Rate0%8%
Term 6060
Monthly Payment$667$620
Total Cost40,000$37,200

As you can see from this example, you’d be paying more overall with the 0% financing option. However, in other circumstances, a 0% financing option might work better, depending on the cash rebate. Ultimately, the cash rebate amount will reduce the amount of interest you pay as well as how much you pay in taxes on the total amount financed. 

Check out these car insurance discounts.

How To Qualify For 0% Financing On A Car? 

It might be easy to find 0% car financing, but 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. 

Keep in mind that 0% financing may not be the only good deal available. If your credit isn’t high enough to qualify for 0% financing, there may be other promotions you may be eligible for.  

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. 

Advantages And Disadvantages Of 0% Car Financing

The perks of 0% car financing are rather obvious, but there are a few drawbacks to this type of financing that you should be aware of before you apply. 

Advantages Of 0% Financing In Canada

  • 0% interest. The greatest benefit to 0% car financing is the lack of interest. Essentially, you’re able to borrow money for free. This is can help you save thousands of dollars over the life of the loan.  
  • No need to compare shops. Rather than comparing different lenders for the lowest interest rate, you can deal directly with the dealership where you’re buying your car. This will save you a lot of time and hassle. 
  • 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

  • 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 brand 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 will usually be high. This can make it difficult to fit within your budget.  
  • You could pay more overall. As we demonstrated earlier, 0% financing could cost you more overall when compared to other deals, such as a cash rebate. Or, the dealer may charge a higher price for the vehicle to make up for the 0% interest rate. 
  • Maybe a limited offer. 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 that is offered on new vehicles.
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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 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 secure a good car financing deal, try the following tips:

Boost Your Credit Score – One of the main requirements for 0% car financing and other car financing options 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 get approved for and 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 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.

0% Car Financing FAQs

Can I get 0% financing if I have bad credit?

Generally speaking, bad credit will not qualify for 0% financing. Most lenders that offer 0% car financing require borrowers to have a credit score of at least 700 or higher. 

How much do I need to put down for 0% financing?

The down payment amount required depends on the lender. A higher down payment is usually best, as it shows the lender that you have the financial backing to support monthly loan payments. Plus, it will reduce the overall loan amount you need to take out. 

Can I get 0% financing on a used car?

Usually no. Used cars almost never come with 0% financing offers. If a lender does offer a 0% car loan for a used vehicle, review the fine print to make sure there are no extra fees or that the vehicle isn’t priced higher than it should be to make up for no interest. 

Can I get 0% financing on a new car?

Yes, 0% financing is usually only offered on new vehicles if you have excellent credit.

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 all checks out, you can essentially borrow a few thousand bucks for free to buy your next car. 

Rating of 5/5 based on 1 vote.

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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