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! This is YOUR Vacation from Interest!”... Is this true? Or yet another sales tactic?

We associate purchasing a car with a lot of money, for good reason. A vehicle is typically the second most expensive investment that a person will make in their lifetime, 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 zero percent APR means a lot of money saved. Saving money on a vehicle with 0% financing is definitely possible, however it’s not easy to get approved for a vehicle with this rate, and for those who are, there’s generally a lot of fine print associated with it.

What Is 0% Interest Car Financing?

When you apply for auto financing, you agree to borrow money from a lending institution to help you pay for the car loan. However, lenders don’t let you borrow this money for free, which is where interest rates come in. Interest rates are the fees that you pay in addition to the loan’s monthly fees. 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.

It can be difficult to get approved for 0% financing if your credit score isn’t great. This is typically where the confusion comes in, when subprime customers – people whose credit scores are below average – are told that they can’t get approved for the 0% financing offer because of their current credit standing. Car dealership that promote special offers don’t usually specify that those with great credit have a better chance of getting approved for them. Knowing this, it’s never a good idea to assume that you’ll be approved for 0% financing, as automakers maintain a strict applicant profile that must be met before 0% financing is offered. There are instances, however, when a person who has less than perfect credit may be approved for a 0% financing option.

Is 0% Financing a Car Possible?

Qualifying for 0% financing on a vehicle is definitely possible, however, buyers should know that often times, this is a deal offered by the automaker and not the financial institution. Lenders approve applicants for special vehicle offers only when they can ensure that the buyer will be able to pay the vehicle off in full each month.

Who is Offering Zero Percent Financing on Cars?

Every automaker has different 0% financing options available for Canadians. Toyota Canada, for example, is currently running a promotion for 0% financing on select vehicles. 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, and each one has their own, unique special offers, including 0% financing. If you’re in the market for a new vehicle, apply with Canada Drives for free today 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. This being said, there are some risks associated with entering a 0% financing contract with a dealership. At the end of the day, automakers have one goal: to make money. If you’re hoping to get approved for a special financing offer, remember to read the fine print. Dealerships sometimes advertise 0% financing but don’t inform interested buyers that the promotion is only offered for a portion of the loan term. Additionally, it’s common for 0% financing deals to come with higher monthly payments. Although this option might come off as a guaranteed money saver, automakers spread monthly payments for 0% financed cars out over a longer loan period with higher monthly rates. If you’re a subprime car buyer or are interested in only buying a used or certified pre-owned vehicle, the 0% financing deal won’t apply to you, as 0% financing is only offered on new vehicles. This makes it more difficult for someone with less than perfect credit to get approved for special promotions.

If you walk into a dealership that has a special promotion and you find out you’re not eligible, don’t fret. Zero per cent financing promotions are typically only offered to those with great credit. If you’re very interested in getting a 0% financing deal, start working on rebuilding your credit score by ensuring all of your loan payments are paid on-time and in full each month. Low interest rate offers and incentives from car dealerships will always be available for consumers.

To summarize, here’s the catch with 0% financing:
  • Typically only the best credit consumers are eligible for 0% interest financing
  • 0% interest may only apply to a portion of the loan term
  • 0% financing deals may be offered on a longer loan term, with higher monthly payments
  • 0% Interest is only offered on new vehicles

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

If you don’t get approved for a special financing offer, 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. Shop at 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 final sale price, try to do so at the end of the month. Dealers will be more lenient with the final sticker price as they’re trying to make one more final sale.

  1. Ask the Total Vehicle Price

Dealerships will often explain to you the financing of a vehicle in bi-weekly or weekly terms. This means that they won’t specifically iterate what the total monthly financing payments will be. As most people 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. Read the Fine Print

As trustworthy as dealers can be, they’re still sales people. It’s in your favour to thoroughly read the fine print before you purchase a vehicle, as sometimes there’s information included in the agreement that the dealer may have left out. Ensuring that you understand every detail of the contract will eliminate the risk of any unwanted surprises during the length of the loan.

Canada Drives has been helping Canadians find vehicles with great auto finance rates since 2010. Our online application takes less than two minutes, and we’re partnered with dealer partners all across the nation that offer incentives and promotions for people facing all types of credit situations. Apply with Canada Drives to learn more and see if you’re eligible for 0% financing


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