$0 Down Car Financing: How to Get Approved

$0 Down Car Financing: How to Get Approved

Posted on February 20, 2023

Canadians that want to buy a car but lack the cash on hand for a down payment may qualify for $0 down car financing. Having a down payment helps demonstrate you are serious about buying a car but carmakers understand that most prospective buyers do not have the cash available.

Our auto loans team explains how to buy a car without a down payment while avoiding risky borrowing.

Can You Afford the Loan?

This is a crucial step since even if your credit is excellent, you may not be able to afford the monthly payments.

Debt-to-income must currently be 40% or less in order to qualify for a car loan. Therefore, the most debt you can have, including the new car loan, if you make $10,000 per month is $4,000, for the purpose of simplicity.

Even without maintenance and insurance, the typical monthly car payment can easily exceed $800. Therefore, it will make the entire car-buying transaction more pleasant for everyone concerned if you have a large amount of room in your budget.

Pros of $0 Down Car Financing

There's no need to put off saving for a down payment if you need a car right away but lack the funds for one. Instead, you may finance it with no money down.

If you do have some savings but not enough for a down payment, hold onto them for emergencies or until you have enough for a down payment the next time you buy a home.

Cons of $0 Down Car Financing

Higher interest rates: Because the lender is taking on most of the risk, certain no money down auto loans may have higher rates. They use the rate to reduce the possible loss if you default.

Negative equity: Making a down payment can protect you from negative equity because it will offset any value loss in the vehicle. This isn't a problem if you intend to pay off the loan in full, but it might be a problem if you pay it off early.

Higher credit score requirement: The lender wants to be sure you're a good bet if they're taking on extra risk. Auto loans with no down payment typically have a higher credit score requirement than conventional loans.

No money down auto loans are not available from all lenders, even the well-known ones. To get what you want, you may occasionally have to go straight to a dealership. However, give us a call first because we have access to some lenders that are willing to offer them.

As you can see, there are generally more drawbacks to no money down auto loans than advantages. They may be effective in some circumstances, but if you have a superior option, you should probably use it.

They can be pricey, they come with higher interest rates, and you won't have much equity in the vehicle for a long. Although they can help you escape a predicament, they aren't always the greatest choice.

If you're ready for a car loan, we'd love to help with that! simply fill in the form below to get started.