Car Deal Canada

0% Interest Car Loans

0% Interest Car Loans

In today’s rising interest rate environment, 0% financing deals on new car purchases have become more attractive than ever. While these incentive offers used to be reserved only for those with pristine credit, automakers and lenders have opened up eligibility to consumers across a wider credit spectrum. In this post, we’ll break down everything you need to know to take advantage of a 0% new car loan and get behind the wheel without paying a cent in interest.


According to a recent study, 0% financing offers on new vehicles have increased by over 20% compared to last year, giving car buyers more opportunities to finance their next purchase interest-free. With the Federal Reserve projected to continue raising rates in 2023, zero percent loans allow consumers to avoid potentially thousands of dollars in interest charges.


Whether your credit score is excellent or just average, there are strategies you can use to qualify for 0% financing and maximize savings. By arming yourself with the right information, you can navigate dealership incentives and negotiate the best possible deal on your next new car, truck or SUV.



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What 0% Car Financing Means

0% car financing refers to a car loan that has a 0% annual percentage rate (APR). This means that the loan has no interest charges over the life of the loan. With a 0% APR car loan, your monthly payments go entirely towards paying down the principal balance of the loan. You do not pay any interest costs.

A 0% APR offer may also be referred to as 0% financing, 0% interest, or zero percent financing. They all mean the same thing – you are not charged interest on the loan.

Many people think 0% financing means the loan is completely free. This is not the case. While you do not pay interest charges, you still have to pay back the full amount borrowed – the principal of the loan. Your monthly payments on a 0% loan are lower than payments on a standard loan since none of it goes towards interest.

0% financing deals are offered by car manufacturers as incentives to buyers. The deals are usually only available on new cars, for specific models, and for a limited time. The 0% APR incentive allows the manufacturer to effectively discount the price of the car by removing the finance charge.

Getting 0% financing can save you hundreds or even thousands of dollars in interest costs. It makes the car more affordable overall. However, 0% loans typically have more stringent eligibility requirements compared to standard financing.

 

Who Qualifies for 0% Financing

Getting approved for 0% financing requires meeting strict eligibility criteria. Automakers and lenders offering these deals want to minimize default risk, so they set high standards.

The most important factor is your credit score. To qualify for 0% financing, you’ll typically need a FICO score of at least 720, and often higher. Some luxury brands may require a score over 750. The higher your credit score, the better your chances.

Your income also matters. Lenders want to see you have enough steady income to comfortably afford the monthly payments. Expect to need a minimum annual income of $45,000 to qualify for mainstream brands, and up to $75,000 for luxury makes.

You’ll also need a clean credit history with no missed payments, bankruptcies, or collections in recent years. A long credit history and mix of credit types also helps approval odds. Additionally, a lower requested loan amount relative to your income improves eligibility.

Down payment size affects chances too. Putting down 20% or more gives you the best shot at 0% financing. Lower down payments may disqualify you or require a higher interest rate.

Finally, focus on new not used. 0% deals are mainly reserved for new vehicle purchases only. While used cars sometimes offer 0%, it’s less common.

Ultimately, having pristine credit and a strong financial profile gives you the highest probability of qualifying for a 0% car loan.

 

How to Improve Your Chances

Getting approved for a 0% car loan requires excellent credit, typically a score of 720 or higher. Here are some tips to boost your credit and improve your chances of qualifying:

 

Boost Your Credit Score

First, check your credit reports from Equifax, TransUnion and Experian for any errors that may be dragging down your score. Dispute any inaccurate information to get it removed. Pay down balances on credit cards and other revolving debt to lower your credit utilization ratio. Make all loan and bill payments on time each month. Become an authorized user on someone else’s credit card account in good standing.

 

Pay Down Existing Auto Loans

If you currently have an auto loan, making extra payments to pay it down faster will also help improve your credit profile for a new 0% financing application. The lower your current car payment obligations and total balances, the better.

 

Save for a Down Payment

Lenders view a sizable down payment as a sign you are financially stable and able to manage the 0% loan responsibly. Save enough for a 20% down payment if possible. The more you can put down upfront, the lower your financed amount will be.

 

Keep Other Debt Low

Aside from auto loans, try to minimize monthly payments on all other consumer debt like personal loans or lines of credit. The lower your overall debt-to-income ratio, the more likely an approval for 0% car financing.

 

Overview of Current 0% Offers

With interest rates rising, automakers are competing harder than ever to entice buyers with 0% financing deals. Most major brands currently have several models available with 0% APR for qualified buyers, though terms and availability vary.

Some of the most attractive current offers include:

 

  • Toyota – 0% APR for up to 72 months on 2023 Camry and Highlander
  • Honda – 0% APR for up to 60 months on 2023 Accord, CR-V, and Odyssey
  • Ford – 0% APR for up to 72 months on 2023 F-150, Mustang, and Edge
  • Chevrolet – 0% APR for up to 84 months on most 2023 Silverado 1500 and Equinox models
  • Hyundai – 0% APR for up to 72 months on the 2023 Tucson and Santa Fe
  • Nissan – 0% APR for up to 72 months on most 2023 Altima, Rogue, and Pathfinder models

 

Keep in mind eligibility requirements, approved credit, and other restrictions apply. But overall, many automakers are featuring 0% financing on popular models to boost sales in today’s market.

 

Best 0% Deals by Brand

With interest rates on the rise, most major automakers are offering tempting 0% financing promotions to move inventory. Here’s a look at some of the top deals currently available from the major brands:

 

Toyota

Toyota is offering 0% APR for up to 72 months on several 2023 models including the Camry, Corolla, RAV4, Highlander, and Tacoma. This provides excellent savings on their best-selling vehicles. With highly-rated reliability, resale value, and standard safety features like Toyota Safety Sense, their 0% financing deals deliver exceptional long-term value.

 

Honda

Select 2023 Honda models are available with 0% APR for up to 60 months. Eligible vehicles span their lineup from the Fit subcompact to the Pilot and Passport SUVs. Honda vehicles offer great fuel economy ratings and retain their value very well over time. The 0% interest offer makes it more affordable to get into a new Honda.

 

Ford

Ford has 0% financing for up to 72 months on the 2023 F-150 along with 0% for 60 months on the Escape, Edge, Explorer and Expedition. With strong capability, technology and design, Ford trucks and SUVs are compelling choices. You can finance at 0% interest without compromising on features or performance.

 

Estimated Monthly Payments

When considering a 0% financing offer, it’s important to look at what the monthly payment will be based on the loan amount. Monthly payments can vary quite a bit depending on the make and model you choose. Here are some estimated monthly payments on popular 2024 models with 0% financing for 60 months:

 

  • 2024 Honda Civic LX: MSRP $24,095, Monthly Payment $402
  • 2024 Toyota RAV4 LE: MSRP $27,350, Monthly Payment $456
  • 2024 Nissan Altima 2.5 S: MSRP $26,325, Monthly Payment $438
  • 2024 Ford Escape S: MSRP $27,215, Monthly Payment $453
  • 2024 Chevrolet Equinox LS: MSRP $26,995, Monthly Payment $449

 

Keep in mind taxes, fees, and any down payment will also impact the monthly payment amount. But these estimates give you a good baseline to understand potential budgets on popular models. Aim for a monthly payment you can comfortably afford each month over the loan term.

 

Deal Fine Print

While 0% financing offers may seem too good to be true, it’s important to read the fine print before signing on the dotted line. Here are some key details and limitations to be aware of:

 

Short Loan Terms

Most 0% deals are only available for short loan terms, usually 24-36 months. You’ll end up paying more interest over the life of the loan if you take a longer term.

 

High Credit Score Requirements

To qualify for 0% financing, you typically need top-tier credit, 720+ scores. Those with lower scores will pay higher interest rates.

 

Large Down Payments

0% loans may require 10-20% down payments or higher, reducing the amount you need to finance.

 

Vehicle Restrictions

Deals only apply to select new models, trims, and inventory. The car you want may not qualify.

 

Loan Amount Limits

There are caps on the maximum loan amount eligible for 0% APR, often $30,000-$40,000.

 

Expiration Dates

Offers are only valid for a certain period and can end at any time. Don’t wait too long.

 

Dealer Participation

Not all dealers participate in 0% financing promotions. Shop around to find those offering the best terms.

 

Pre-Payment Penalties

Some 0% loans charge fees if you pay off the balance early. Make sure to ask.

While 0% financing can provide savings, it’s essential to read the fine print and understand any limitations before committing. This ensures you get the best possible deal for your situation.

 

Boost Credit Score

One of the most important factors in qualifying for 0% financing is having an excellent credit score. Most lenders offering 0% require a minimum score of 720, but aiming for 750 or above will give you the best shot. Here are some tips to quickly boost your credit score before applying for an auto loan:

 

  • Pay down balances – Lowering credit card and loan balances can give an immediate boost. Try to get balances below 30% of the credit limit.
  • Dispute errors – If you find mistakes on your credit reports, dispute them to potentially improve your score.
  • Become an authorized user – Ask a family member with good credit to add you as an authorized user on a long-standing account.
  • Limit hard inquiries – Each application for credit results in a hard inquiry, so limit how many you do in a short timeframe.
  • Ask for credit line increases – Higher limits with low balances help your credit utilization and score.

 

In addition to the actions above, maintaining on-time payments and keeping old accounts open also supports long-term credit health. Give yourself at least 3-6 months of credit score optimization to set yourself up for the best chance at 0% car financing.

 

Optimal Down Payment

When trying to get the best possible 0% financing deal, your down payment can have a big impact. In general, you’ll want to put down at least 10-20% if possible. This shows the lender you are financially committed to the purchase. It also lowers the amount being financed, reducing the lender’s risk.

Putting down 20% or more is ideal for a 0% car loan if you can afford it. This maximizes your leverage in negotiations and makes you an attractive buyer. Some lenders may require up to 30% down on certain 0% offers based on your credit profile.

That said, some automakers offer 0% financing even with little or no money down. You may be able to qualify for 0% with a down payment as low as $0-1,000 in certain cases. Just know that lower down payments typically mean higher monthly payments.

Run an auto loan calculator to estimate payments based on different down payment amounts. Find the sweet spot where your down payment reduces the monthly burden sufficiently while still being affordable upfront.

The optimal down payment amount for a 0% car loan varies by individual. But in most cases, 10-20% down or more can maximize your chances of getting approved on the best possible terms.

 

Negotiation Tips

When it comes to negotiating 0% financing and other incentives on a new car purchase, here are some effective strategies to try:

 

  • Know the incentives – Do your research ahead of time on available rebates, cash back offers, and promotional APR deals from the manufacturer. This gives you more leverage in the negotiation.
  • Get pre-approved financing – By securing an auto loan pre-approval from your bank or credit union before visiting the dealership, you strengthen your position and have a financing backup plan.
  • Wait for deals near month-end – Since dealers have monthly quotas to hit, great offers tend to pop up at the end of the month as they aim to move inventory.
  • Mention competing offers – Politely bring up better deals you’ve seen at other dealerships for the same vehicle. This puts pressure on the dealer to match or beat the deals.
  • Bundle requests – Try bundling your requests for a fair price, 0% financing, and any applicable incentives into one negotiation. This increases the chances of landing multiple savings.
  • Calculate the best option – Compare taking a rebate versus 0% APR based on factors like loan length, interest rate, and projected monthly payments to determine the optimal choice.
  • Walk away if needed – Don’t be afraid to walk away from a deal that doesn’t meet your needs. With patience, you can often get the dealer to call back with an improved offer.

 

Approaching negotiations prepared and informed on available incentives gives you the upper hand in securing a great 0% car loan deal.

 

Leasing vs Buying Considerations

When offered 0% financing, you’ll need to decide whether leasing or buying is the better option for your situation. Here are some key considerations:

 

Pros of Leasing with 0% Financing

Leasing can make sense if you want to drive a new car every 2-3 years without being saddled with debt. With 0% financing, leasing becomes even more attractive because you pay no interest charges. Benefits include:

 

  • Lower monthly payments than purchasing
  • No down payment required on most leases currently
  • Always driving a newer model vehicle
  • Potential tax deductions on monthly lease payments

 

Cons of Leasing with 0% Financing

While leasing has advantages, there are some drawbacks to consider:

 

  • Strict mileage limits, typically 10,000-15,000 miles per year
  • Excess wear and tear charges at lease end
  • No equity – all payments go toward usage rather than ownership
  • Higher insurance costs than owning

 

Buying Considerations

Purchasing with 0% financing allows you to build equity, customize the car, and avoid mileage restrictions. But buying means higher monthly payments and down payment requirements. Run the numbers carefully and assess your budget and expected mileage needs.

Ultimately, choosing between leasing and buying comes down to your financial situation and desire to drive new cars frequently. With 0% deals, both options let you avoid interest charges.

 

Pay Off Quickly

One of the best ways to maximize the value of a 0% interest auto loan is to pay it off as quickly as possible. While you aren’t being charged interest, the loan balance still remains. Paying down the principal faster will help you:

 

  • Build equity in your vehicle more quickly
  • Free up cash flow sooner by eliminating the monthly payment
  • Avoid owing more than the car is worth if you total it or trade it in while still paying down the loan
  • Qualify for better interest rates on your next auto loan by shortening your length of current financing

 

To accelerate payoff, consider making extra principal payments each month or even weekly. Even an extra $50-100 per month can make a significant impact over the life of the 0% interest loan. You can also make an extra lump sum payment with any cash windfalls like tax refunds or bonuses. Just be sure to specify the extra amount should go directly to principal.

The lack of interest makes fast repayment particularly advantageous with 0% auto financing. Paying off the balance early allows you to maximize this benefit and own your vehicle outright much more quickly.

 

Refinance Considerations

One key decision when taking out a 0% auto loan is determining whether to refinance down the road. Just because you start with a 0% interest rate doesn’t mean you have to keep it for the entire loan term.

Here are some factors to consider regarding refinancing a 0% car loan:

 

  • Interest rates rise – If interest rates increase later on, refinancing could lock in a still-low fixed rate before rates climb higher.
  • Improved credit – Refinancing after a year or so of on-time payments can get you a better rate with your now-improved credit.
  • Lower monthly payments – Refinancing a shorter remaining loan term can reduce monthly payments, even if the rate is slightly higher.
  • Cash-out equity – If you’ve paid down a significant chunk of the 0% loan, refinancing could free up equity for other uses.
  • Change lenders – You may find a lender with better rates or terms suited to your situation.

 

To make the most of refinancing, be sure to consider:

 

  • Payoff timing – Don’t refinance too early into the 0% loan or you’ll lose the interest savings.
  • Total costs – Closing costs may outweigh interest savings, especially on shorter-term loans.
  • Loan term – Opt for the shortest term you can manage to minimize interest paid over time.

 

With the right timing and new loan terms, refinancing a 0% auto loan can provide financial flexibility. But don’t rush into it without weighing the tradeoffs.

 

Purchase Protection

When you take advantage of a 0% financing deal on a new vehicle, protecting your investment should be a top priority. After all, you want to avoid owing money on a car that gets totaled in an accident shortly after driving it off the lot.

Gap insurance can provide an extra layer of protection in case your new car is declared a total loss. This add-on coverage pays the difference between what your auto insurer pays out for the actual cash value of the totaled vehicle, and what you still owe on the loan. For example, say you owe $15,000 on your 0% loan, but your car is only valued at $12,000 by your insurer after a bad crash. Gap insurance would cover the $3,000 difference so you don’t end up making payments on a car you no longer have.

You’ll likely have the option to purchase gap insurance right at the dealership as you’re signing the financing paperwork. It typically adds $300-$500 to the total loan amount. Some auto insurance policies also include gap as an optional add-on. Just be aware that opting for gap from your insurer instead of the dealer may change the coverage terms, so read the fine print carefully.

Another option is to put down a larger down payment, such as 20%, to immediately build more equity in your new vehicle. This reduces the gap between its value and the loan balance. You can also look for 0% deals that allow equity from a trade-in to reduce the financed amount. That way you start out with more equity from day one.

No matter how you purchase a new car, making sure you have ample liability, collision, and comprehensive coverage is wise. This gives you protection if the car gets damaged in an at-fault accident, encounters other physical damage, or gets stolen. Carrying more than the state minimum liability limits ensures you have adequate coverage to repair or replace the vehicles of other drivers should an accident occur.

By bundling your new 0% financed vehicle with homeowners or renters insurance, you may be eligible for a multi-policy discount to reduce your premiums. You can also keep costs down by opting for a higher deductible. Just be sure you have savings to cover the out-of-pocket expense in case you need to file a claim.

Following safe driving practices, keeping your car locked and parked in secure areas, and adding anti-theft devices can help avoid situations that would require relying on your insurance coverage. But it’s important to be prepared, just in case. Protecting your investment is key to ensuring you can enjoy all the benefits of scoring a 0% interest new car loan.

 

Conclusion

With some research and preparation, 0% financing makes buying a new car more affordable. Focus on improving your credit, saving for a down payment, and negotiating to find the best offer that fits your budget. Leverage current deals to maximize savings, but be sure to read the fine print.

The main benefits of 0% financing include:

 

  • No interest charges – Your entire monthly payment goes toward paying off the principal
  • Lower monthly payments – Without interest charges, your payments are lower
  • Pay off faster – You can pay off the loan quicker since payments go straight to principal
  • Tax savings – With lower monthly payments, you may stay in a lower tax bracket
  • More negotiating power – 0% financing gives you flexibility in negotiations
  • Improved cash flow – Lower payments free up cash for other goals

 

With some savvy shopping, strong credit, and negotiation, 0% financing can help make your next new car purchase more affordable. Focus on the long-term savings and benefits when considering 0% offers.

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Questions About 0% Interest Car Loans

Getting a 0% interest car loan in Canada is possible, but generally quite challenging. Most 0% financing offers are only available on select new vehicles and only for buyers with exceptional credit, usually 720 or higher.

 

The key is having a very strong credit score so you pre-qualify for the best possible rates. It’s also important to carefully assess the details of any 0% financing offers – sometimes there are hidden fees or the rate only applies for a short period.



To qualify for 0% car financing from most major automakers in Canada, you typically need a credit score of at least 720. Some luxury brands may require an even higher score of 760 or above.

 

Anything under 700 will disqualify you from 0% interest deals. 700-719 may allow you to get special low APR financing, but 0% will be very difficult unless you have additional factors strengthening your application.

Dealerships do not directly offer 0% interest loans in Canada. 0% financing deals come directly from the car manufacturers as incentives to move inventory. The dealership simply facilitates the financing process between customer and manufacturer.

 

So you need to check current promotions from automakers like Toyota, Honda, GM, Ford, etc to find 0% interest offers, not rely on dealers to provide these low rates. Dealers can guide you through the application process for qualifying 0% loans.



The main catches with 0% auto financing in Canada are:

 

– Very short terms, usually only 2-3 years

– Only for new cars, not used vehicles

– Credit score requirements are 700+

– Not negotiable – takes full MSRP pricing

– Limited selection of models/trims

 

You often have to compromise on vehicle price, features or length of loan to get that 0% rate. Carefully read all fine print before signing anything.



While 0% interest is rare and restrictive, you can find many other low rate deals in Canada, such as:

 

– 1.9% APR for up to 84 months

– 2.9% for 60 months

– Subvented rates as low as 0.99% from credit unions

– Used vehicle rates between 3-5% at longer terms

 

As long as you have decent credit (680+), shopping around can land you excellent rates between 1-3% on both new and used vehicles.



The average interest rate on new car loans in Canada is currently around 6.5% for a 5-year term. For used cars, rates average 8-10% based on factors like age, mileage and loan duration.

 

Those with good credit scores in the mid-high 600s can qualify for rates several points below these averages. Getting pre-approved makes it easier to target better than average interest rates.



This depends on the specific amounts being offered. Generally, a financing rate below 2-3% is more advantageous than an upfront rebate. But if the rebate is significant, it may be the better value overall.

 

For example, a $4,000 rebate on a $30K vehicle likely beats 0% financing in most cases. But a $500 rebate would not offset a very low interest loan. Run the numbers in each unique scenario.



0% loans on used vehicles are extremely rare in Canada. Some credit unions and smaller lenders may run occasional promotions, but the vast majority of 0% offers are for select new cars only.

 

The best used car financing rates from mainstream lenders like banks tend to range between 3-6% based on factors like age, mileage, loan duration and borrower’s credit rating. It takes very strong credit to reach the low end of that range.

The most common new vehicles offering 0% interest deals in Canada include:

 

– Nissan Sentra, Kicks and Rogue

– Honda Civic, HR-V and CR-V

– Toyota Corolla, RAV4 and Tacoma

– Various GM sedans and crossovers

– Select Ford SUVs and trucks

 

Luxury brands like Audi, BMW and Mercedes rarely do 0% financing. Focus on mainstream brands for the best chances at interest-free loans.



0% financing offers on luxury vehicles in Canada are very uncommon. The only exceptions are occasional promotions on lower-end models like the Acura ILX, Lexus UX, or Mercedes A-Class. And even then, it is usually a short 1-2 year term.

 

Most luxury automakers focus incentives on cash rebates or deferred payments rather than eliminating interest. This allows them to keep loan terms longer (and interest income higher) instead of 0% limited promotions.

In Canada, the general rule is that every 10% increment in down payment will reduce your auto financing rate by around 0.5%. This is because the loan amount is lower, so you are considered less risky.

 

For example, 5% down may get you 4% APR approved, while 20% down could drop that to 3% APR on the same vehicle purchase. Maximizing your down payment improves rate offers.



Yes, an established track record of prompt payments on past auto loans can help you secure lower interest rates in Canada. Lenders like to see a profile of managing loan obligations responsibly.

 

In addition, paying loans off faster means you have less existing debt when applying for subsequent financing. This frees up more room in your debt ratio, allowing access to the best rates on your next car.



Yes. As a rule, shorter loan terms (36-48 months) mean lower interest rates in Canada. The longer the payment schedule (60-84 months), the higher your financing rate will be.

 

Lenders consider longer loans as riskier with more chance of payment default, so you must compensate for that risk with higher interest charges.



The top factors leading to higher car financing rates in Canada are:

 

– Poor personal credit score

– High existing debt load

– Financing for longer terms

– Failure to provide down payment

– Financing older or high-mileage vehicles

– Choosing lenders with generally higher rates

Here are current new car loan rates at select Canadian lenders:

 

TD Canada Trust – 3.99% to 8.99%

RBC Royal Bank – 3.54% to 8.99%

Scotiabank – 3.99% to 8.99%

BMO Bank of Montreal – 3.99% to 8.99%

CIBC – 3.99% to 8.99%

 

Credit unions often offer the lowest rates.

Yes. Getting pre-approved for car financing in Canada is highly recommended as it shows sellers and dealers you are a serious buyer and gets you leverage to negotiate for the very best interest rates.

 

With a pre-approval certificate in hand, you know your exact budget and terms. You also gain insider knowledge to pit lenders against each other so one beats out the others with a lower rate.



To access the very best auto financing rates in Canada, a minimum credit score of 720 is recommended, with 760+ being ideal. This shows lenders you represent low risk and deserve to be rewarded with prime borrowing costs.

 

Anything under 680 will lead to notably higher interest charges from mainstream banks and lenders when financing a vehicle.



Other ways to save money on auto loans in Canada include:

 

– Getting quotes from multiple lenders

– Comparing bank rates to credit union rates

– Exploring manufacturer subsidized rates

– Finding dealers with promotional financing offers

– Taking advantage of loyalty discounts

 

The more quotes you get, the better chance of finding rock-bottom interest rates.

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