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Are 0% Interest Rate Loans for Real?

What is the catch with 0 percent financing?

Recently, something you’ll often see while browsing newspapers or some dealership websites are the advertisements selling cars with a dubiously attractive text – “0% financing”. It almost seems like magic, how do they profit from this? Of course, many would be apprehensive about this and do a bit of calculation themselves, but even with that, it can seem like there’s no caveat. But there must be a catch, so what is it?

Thing is, it can often cost more to finance a car through the seemingly enticing 0% financing deals. To truly understand, you’ll have to grasp new car purchase incentives well. Right now, there are two major kinds of incentives that are popular: 0% financing and a cash rebates. However, particularly the case for more expensive cars, 0% financing certainly sounds like a more tempting prospect.

What car manufacturers are offering 0% financing?

0-percent financing is really simple to comprehend, it’s a loan that comes with 0% interest. A good example right now would be a car manufacturer operating here in Ontario, where they’re offering their new hatchback with 0% financing. For a base model, you’re looking at $473.96 monthly for a 48 months finance period without fees, which will turn out to be $22,750 at the end of the payment period.

Of course, it sounds really good on paper. But this manufacturer also offers this model with a $1,500 cash rebate incentive. And If you apply for a similar loan from one of our lender partners with the rebate, a major bank for example, for 3.7% interest rate with no down payment, you’ll be paying $477 monthly. Sure, it’s $4 more per month, but this is for common folks with no negotiation and no down-payment.

But the crucial thing applying for the 3.7% loan is the fact that you don’t actually need to boast a stellar credit score to qualify for one. One big problem with the dealer-specific 0% financing is the fact that it’s very difficult to actually be eligible for one. And it’s entirely possible that you can actually save more money per month with a more generous manufacturer cash rebate and better interest rate.

How can you get a good interest rate?

And that is just on the surface. That’s the part where smart planning and diligent research alone can reveal. The thing is with dealer 0% financing, it’s also likely that you’ll have less wiggle room for pricing and extras. And should you end up missing a month’s payment, it’s entirely possible that your sweet 0% deal can be cancelled. Undoubtedly, 0% financing is less flexible, as it tends to be limited to short-term loans, usually around 36 months or 48 months. This translates to hefty monthly payments.

If you truly scrutinize though, even when you qualify for the 0% interest car finance deals, it can be quite misleading at times, even downright duplicitous should you end up glancing over the contract briefly. You may end up needing to fork over a lump sum at the end of a low or no interest term to fulfill the contract. It can be a worthwhile deal if you’re capable of paying the sum. Otherwise, you may have to apply for yet another loan or worse, end up getting your vehicle repossessed.

Bottom line

Purchasing a car is doubtlessly a massive financial dedication and quite an ordeal for most, especially the inexperienced. However, with prudent planning, it can be possible to end up with a great deal even for used cars. If it’s your first time applying for a car loan, or buying a used car, don’t hesitate to contact us, as we do have finance specialists that can advise you and sort you out with car that meet your needs.