Drive Home with Zero Interest: The Power of 0% Car Loans

Since Covid-19, more and more Canadians have signed up 0% interest car loans. This service has taken over the Canadian and global marketplace.

Even though these facilities may help people make big purchases more manageable, not many Canadians have thought about how they will affect their car financing options when it's time to buy a new car.

Your Credit Score Will be Affected

Some zero percent programs say that they only check your credit lightly before giving you a loan, but if you take one of their three month to 5-year repayment plans, they will report to TransUnion and Equifax.

This inquiry will have an effect on your credit score at first because it is a hard inquiry. After all, you are opening a new account.

But there's another effect of this new feature: it will change how much cash you have each month that can be put toward your new car loan.

Car Buying Budgeting Fundamentals

Even though the loan has a 0% interest rate, you still need to figure out how much you can afford to pay each month.

Lenders rely on a ratio called "debt-to-income," and the highest debt-to-income ratio they will accept is 30%.

Debt-to-income ratio. Source: https://www.mortgagecalculator.org/calcs/debt-ratio.php

Let's say you make $7,000 a month. In that case, the most debt you can have is $2,800, which includes your current monthly payments plus any new car loan you are applying for.

Since the average car payment is easily over $600 and rent is going up, you need to keep an eye on those tempting 0 percent offers, so you don't end up with more debt than you need.

Simple Ways to Improve the Car Buying Experience

There are a few things you can do to make the process of buying a car more enjoyable.

Focus on working on your credit score and trying to get it over 680. This is the magic number for getting the best interest rates on a car loan, mortgage, or any other type of credit facility.

What good credit gives you with car loans

To raise your credit score, all you have to do is pay down your debt. To do this, try to pay more than you have on your debts.

While you work on lowering your total debt, the next step, which might be the easiest, is to always pay your debts on time, when they are due.

These simple tips will help you improve your credit score, which will make it much easier for you to get loans in the future.

Where to Finance a Car for the Best Price

Everyone likes a good deal, and if you want to get the best deal on a new car, no matter what your credit score is, you should go to a local car dealership.

The dealership will be able to get loans from lenders who can offer the best terms in Canada.

The same dealership can also tell you what you need to do to improve your credit score.

Even though these zero percent instalment loans can help you make larger purchases more affordable, you shouldn't do too many of them until you've bought your new car.

Reach out to your local dealership today and start looking at your loan options.

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