Should You Get a 0% Car Loan?

Buying a car is the second-largest purchase you’ll make in your life. Because of the weight, it’s a rather big decision to make. Not only your financial situation a consideration, but the car itself, and the lender additional things to consider. Many Canadians need a car for their day to day life, for commuting or running errands. However, despite the need, the cost of a car can put a dent in your finances. When individuals see 0% car financing, they want to know what it means and how they can get such a favorable offer. For you to learn more about 0% car loans, continue reading below.

What Does It Mean to Have a 0% Car Loan?

As the name signifies, 0% car loans have no interest at all. You might be wondering, no interest? Sign me up. Although, you might think, how are lenders okay with not making any money on the money they give to borrowers? After all, lenders should charge interest on the money they lend because that’s how they earn a profit.

0% financing is not offered by the lenders, it is offered by the car dealers. Dealers or automakers offer 0% financing for them to sell more of their vehicles. Despite them paying interest on their customer’s loans, they will still earn a profit on the sale of their vehicles. Dealerships offer 0% financing even after they pay the interest on your loan, they will turn a profit. However, dealerships only make this offer if you already qualify for a low-interest rate so that they won’t be losing a significant amount of money.

How Do Dealerships Benefit from 0% Car Loans?

How do car dealers make profits from 0% car loans?  As mention above, the dealership will still get a profit even after paying the interest on your loan. They might reach their sales quota and wanted to get rid of the idle inventory. Or maybe they wanted to bring more business into their dealership. Not all customers are qualified for 0% financing. But, at this point, the car salesperson begins their battle of making a sale, whether a customer is qualified or not for 0% financing since they already know they are interested in buying a car.

How do car dealers make profits from 0% car loans?

 As mention above, the dealership will still get a profit even after paying the interest on your loan. They might reach their sales quota and wanted to get rid of the idle inventory. Or maybe they wanted to bring more business into their dealership. Not all customers are qualified for 0% financing. But, at this point, the car salesperson begins their battle of making a sale, whether a customer is qualified or not for 0% financing since they already know they are interested in buying a car.

Please see below the pros and cons

Advantages

No Interest.

Pay Off Your Loan Faster. Without interest, all your car payments will go toward the actual car purchase you may get shorter payment terms and you don’t need to pay down the principal.

All  Bells and Whistles. having a super luxury car with leather interiors, alloy wheels, or anything else, the cost could be included in your 0% loan.

Disadvantages

Applies to Brand New Cars.  0% is not for every customer, this offer is only applicable to brand new cars.

Rare Offer to Find. It’s not often that dealers will agree to pay interest on your loan thereby making this offer rare to come by. Even if you do find a 0% financing offer, it is only effective for short term payments.

Potential Scams. Sometimes 0% financing is too good to be true there might be someone to use 0% financing that may trap you into a scam.

Great Credit Required. 0% financing is such a lucrative offer, it is typically offered to individuals with the greatest credit score. If you don’t have that, you may have trouble securing a 0% offer.  

Am I qualified for 0% Car Loan?

In general, automakers and dealerships offer 0% car loans will look for good or excellent credit. This means that your credit score should be impressive with a good and excellent credit history. You should be in an outstanding financial position, including having little remaining balances.

Do I need to pay for a down payment on a 0% Car Loan?

As with most car loans, down payment are not a requirement. 0% financing is the same. Paying for a down payment is in your best interest because you will pay less over the loan’s term.

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