$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.