0% Interest Car Financing Deals in Canada: Fact or Fiction?

January 9, 2019

Zero per cent financing on a vehicle means that you can finance a vehicle without having to pay any interest. This special offer is similar to paying cash for a car – there are no dealer fees that you’re expected to pay at the cost of borrowing. But is this true for most Canadians? Let's find out!

Many of you have passed a local dealership with a sign out front that reads, “Pay 0% APR! 0% Interest Car Financing!”... Is this true? Or yet another sales tactic?

Buying a car is a big decision. A vehicle is typically the second most expensive investment that a person will make in their life after their mortgage. So, when we see a sign that reads 0% financing outside of a dealership, we’re enticed to learn more about the offer, because we assume that 0% APR means a lot of money saved. Saving money on a vehicle with 0% financing is possible. However, it’s not easy to get approved for a vehicle with this rate, and for those people who do get approved, 0% financing still may not be worth it in the long run.

What Is 0% Interest Car Financing?

When you apply for auto financing, you agree to borrow money from a financial institution to help you pay for the car loan. However, lenders typically charge a fee for this cash advance. These fees are known as interest rates. Interest rates are the fees that you pay in addition to the loan’s monthly repayments. Zero percent financing on a vehicle means that you can finance a vehicle without having to pay any interest. Sounds too good to be true, right?

The big question you're probably asking yourself is, "what kind of bank would lend money with 0% interest? How are they expected to earn anything out of this deal?"

The answer: It's not usually the bank offering this type of financing, but rather the automaker or dealership itself.

Automakers sacrifice earnings on interest in favour of selling more vehicles. Or sometimes a dealership will offer its own type of 0% percent financing. If the dealer can motivate a purchase by paying the interest on your loan, they might decide to do it. This typically happens when you have already qualified for a loan with a low APR, so the dealer has calculated that the amount they are covering is acceptable.

Is 0% Financing a Car Possible?

Zero percent financing is usually reserved for customers with perfect credit. But can a customer with less-than-perfect credit get approved for this type of finance?

It can be difficult due to their higher risk profile. Dealerships that promote these 0% APR special offers don't always specify that only buyers with great credit will get approved. But the reality is that automakers maintain strict applicant criteria that must be met before 0% financing is offered.

Having said that, qualifying for 0% financing when you have less-than-stellar credit is possible. Despite a lower credit score, applicants may get approved for special vehicle offers if they can prove that they can make their monthly payments in full for the duration of the term. Sometimes a cosigner, larger down payment, or collateral will be required. It also helps if the customer has shown lifelong loyalty to that brand.

If you walk into a dealership that has a special promotion and you find out you’re not eligible, don’t fret. Zero percent financing promotions are typically only offered to those with great credit.

Who is Offering Zero Percent Financing on Cars?

As discussed, almost every automaker has various 0% financing options available for Canadians, and some dealerships will offer similar deals to motivate a purchase.

Canada Drives, an auto finance company that helps Canadians with less-than-perfect credit get approved for affordable vehicle loans, is partnered with hundreds of car dealerships in Canada, each with their own, unique special offers, including 0% financing.

If you’re in the market for a new vehicle, apply today with Canada Drives to see what you could be approved for. Once you’re matched with a Canada Drives dealership partner in your city, you can find out if you’re eligible for a special offer on your next car loan!

The Downsides of 0% Vehicle Financing

It’s very rare for a 0% financing option to be a scam, especially if you’re purchasing from an accredited automaker. But as enticing as it sounds, a 0% financing contract might not always be the best deal on offer.

A 0% interest loan is usually offered alongside a cash rebate option, and the rebate option can often work out better for you, so make sure you have a calculator close by when you're considering your options.

If you were hoping to get 0% financing on a pre-owned car, you're out of luck, unfortunately. This type of financing only applies to brand new cars. 

To summarize, here are the facts on 0% financing:

  • It is typically reserved for car buyers with the best credit, but in certain circumstances, can also be offered to customers with bad credit.
  • This type of deal is usually financed by the automaker or dealership rather than the banks.
  • It is frequently offered alongside a cash rebate. You can only choose one, and the cash rebate option can often be the better choice.
  • It only applies to sales of brand new cars.

How to Save Money on Your Next Vehicle (Without 0% Financing)

If you don’t get approved for 0% financing, here are a few car buying tips that can help you save money on your next vehicle, year-round, without any incentives from an automaker.

  1. Wait Until the End of the Month

Just like most retail stores, dealerships have sales goals that they have to meet at the end of every month. If you’re looking to buy a new vehicle and are keen on negotiating the price, try to do so at the end of the month. Dealers may be more accommodating in order to secure one more sale for the month.

  1. Focus on Monthly Payments

Dealerships will often explain to you the financing of a vehicle in bi-weekly or weekly terms. This means that they won’t clarify what the total monthly financing payments will be. As most of us budget on a monthly basis, ask the dealership to outline the pricing terms and conditions by month, this will help you better understand what you can and can’t afford before being locked into a contract.

  1. Examine ALL your options

Zero percent financing may sound like the best deal, but if you're smart about it, you can save more by negotiating with your dealer and taking advantage of other great offers.

What Car Manufacturers Offer 0% Financing?

Toyota, Hyundai, Nissan, and Kia currently offer 0% APR on select models nationwide. Mitsubishi offers 0.99% financing, and Volkswagen advertises 1.99% APR incentives.

Canada Drives connects customers with all of the above-mentioned brands. With over 350 certified dealership partners, we can help you to secure the best incentives and promotions. Bad credit? We're here to help!

Apply with Canada Drives to see if you’re eligible for 0% financing. Our online application takes less than three minutes, and you could be driving your new vehicle as soon as tomorrow!

Hopefully, this article has demystified some of the unknowns surrounding car loan financing. If you’re interested in learning more, read other articles from our Fact or Fiction series. In one article, we look into cash back car loans to give you the facts, and in another, we provide a comprehensive breakdown of no credit check loans. We also delve into the details of zero down payments

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