Is 0% Financing Really A Good Deal?

Is 0% Financing Really A Good Deal?

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated September 9, 2022

The interest rate you’re charged on a loan is one of the most significant factors that can impact the cost of your loan. As such, getting a low-interest rate is one of the best ways to make your loan more affordable. In some instances you may be able to get 0% financing, however, are 0% financing offers a good deal? 

What Is 0% Financing?

As the name suggests, 0% financing means that you do not pay any interest on a loan taken out to cover the cost of a big purchase, such as a car. That means the lender will provide you with the funds needed but will not charge any interest for it. Basically, 0% interest allows you to pay what an all-cash buyer would be paying, with the difference being that you can spread out the payments in installments over time.

Is 0% Financing A Good Deal? 

There’s a lot of fine print that comes with these types of financing programs, and because of this, you could end up paying a lot more for your purchase than if you had taken out a standard loan.

Just because you’re getting 0% financing doesn’t always mean that you’re getting the best deal. Moreover, many car dealerships and retailers will increase the price of the item in order to compensate for the 0% interest offer. 

For example, a dealership may offer a 0% financing offer on a $30,000 car, however, another dealership may offer the same car for $25,000 with an interest rate of 7.5% over 5 years. The total cost of the loan would equal to approximately the same at $30,056. This means if you’re able to qualify for a lower interest rate, it can be a cheaper option.

Car Loan$30,000$25,000
Interest Rate0%7.5%
Term 60 months60 months
Monthly Payment$500$500.95
Total Cost$30,000$30,056.92

Where Can You Get A 0% Financing Offer?

Zero-percent financing is offered in a variety of places. You can essentially find these types of offers from a myriad of retailers and lenders, including the following:

  • Car financing from a dealership
  • Furniture retailers
  • Electronics retailers
  • Credit card balance transfers

Requirements For A 0% Financing Offer 

In order to be eligible for 0% financing, you’ll have to have very good credit, which many Canadian consumers don’t have. As such, there is a good chunk of the population that may not be able to secure a 0% financing deal, no matter how interested they may be in such a program.

Can You Get 0% Financing On A Personal Loan?

You’d be hard-pressed to find a personal loan that offers zero percent financing. Generally, 0% financing is not offered by personal loan lenders. However, you could get a 0% financing offer to purchase a big item through retail financing. Many furniture and electronics stores offer 0% financing for their clients. 

Below are a few furniture stores that offer 0% financing. 

The Brick FinancingThe Brick offers up to $20,000 in financing with no interest. Terms range from up to 18 or 36 months. 
Ikea FinancingIkea Canada does not offer any in-store financing
Leon’s FinancingLeon’s offers 0% interest financing through the Leon’s Flexiti Card. Get equal payment plans with 12, 18 or 24-month terms. They also offer 6- or 12-month terms with no payment. 
Urban Barn FinancingUrban Barn offers financing through PayBright for purchases between $500 to $15,000. You can choose between 6, 12, 18, 36, 48 and 60-month terms (depending on the purchase amount). 
WayFair FinancingWayFair offers financing through PayBright. Payments between $50 – $300 can be paid in 4 equal installments while purchases over 300 can be paid in 12 or 24 installments. 

Can You Get 0% Financing On A Car Loan?

Many car dealerships offer 0% financing on a car loan as a way to sell more vehicles. These offers typically are only available to those with good credit and finances. However, it’s important to note that these offers often come with an introductory period, meaning the 0% only lasts for a certain period of your car loan term.  

Can You Get A 0% Interest Rate On A Credit Card?

You can get 0% or close to zero percent on a credit card through a credit card balance transfer. Do note, that the interest rate is only available for a short period of time, usually between 3-6 months. Moreover, if you miss a payment during the introductory period, your offer may be rescinded. 

Benefits Of 0% Financing

0% financing has a number of benefits including the following:

  • No interest – One of the most obvious benefits to 0% financing is the lack of interest. With zero percent interest, the total cost of your loan will be low. You simply have to pay the cost of the item you’re buying.
  • Spread costs – With zero recent financing, you don’t just get to avoid the interest, but you also get to spread the costs over a period of time, making payments more affordable.

Drawbacks Of 0% Financing

The lure of making large purchases is magnified with 0% financing. But as attractive as such an arrangement may be, it’s important to understand everything there is to know about it before you commit yourself.

You May Have To Pay Interest

Many  0% interest loans come with certain clauses, which if you fail to adhere can lead to your offer being nullified. Many 0% interest offers must be fully repaid within a specified period of time (usually referred to as the  “introductory interest-free period”), if not you may be charged interest. Similarly, if you make any late payments, you could be charged interest.

These conditions are typically hidden in the fine print, which is why you should always review your contract carefully before signing. 

0% Financing Isn’t Always The Best Deal

The actual prices for items being offered with 0% interest aren’t always the best. It’s not uncommon for the price of items to be hiked up a bit in order to offset the no-interest offer.

Can 0% Financing Affect Your Credit? 

The interest rate you’re charged isn’t considered in the calculation of your credit scores. Rather it’s how you handle your loans that can affect it. As such, taking out a 0% interest loan can affect your credit, which can be in a positive or negative manner depending on how responsible you are with it. 

For example, if you have a 0% car loan, your credit can be negatively affected if you miss your car loan payments. Similarly, if you get a 0% credit card balance transfer, your payments can affect both your payment history and credit utilization.

Is 0% Financing Right For You?

0% financing can be right for you if:  

  • You were already going to purchase the product that has a 0% financing offer attached to it.
  • There is no “postponed interest” period after a 0% introductory period. Read the fine print to identify anything that mentions “deferred-interest.”
  • You have the financial capability of affording the purchase you’re making after careful assessment of your current finances.

0% Financing FAQs

Should I accept a 0% financing offer?

0% financing can entice consumers to spend more than they otherwise would have. The idea of not having to pay any interest may be so attractive to some consumers that they could end up buying items they really can’t afford. This can lead to mounting debt that, at some point, can end up being too overwhelming to deal with. As such, it’s important to only accept a 0% financing offer if you can afford it and you actually need the item you’re trying to purchase. 

What happens if I miss a payment during my credit card balance transfer promotion?

Some creditors will end your promotional interest rate if you fail to make your monthly payments. Similarly, if you fail to pay off your balance transfer balance, you may be charged interest on the entire amount. 

What credit score do I need to qualify for 0% financing?

Generally, you’ll need good to excellent credit in order to qualify for 0% financing offers. Lenders may also have certain income and debt requirements. 

Bottom Line

There are certainly some things about 0% financing that you should be wary of that could actually be detrimental to your finances and credit. But at the same time, there may be an instance where such an arrangement can actually be a good thing. If your finances are sound and you’ve been considering buying a particular item for a while, a 0% financing program may be a way to save some money. 

Rating of 4/5 based on 10 votes.

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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