What Is A 0% Car Loan?
When looking at buying your new car, you may have come across a very attractive looking option: the 0% car loan.
Anything with zero percent in the name has to be a good thing right? Usually we’re used to seeing steep interest rates attached to all sorts of loans, especially car loans in Toronto.
But interest rates are an intrinsic part of any loan according to conventional wisdom. After all, the media always makes a big deal about any hike or drop in the key interest rate.
So what exactly are 0% car loans and how can they work?
Here we look into the murky waters of zero percent car loans, what to keep an eye out for when considering one, and whether they are worth it at all.
What is interest?
Before we can understand what a zero percent car loan is, we first have to understand what exactly interest is.
Interest is the fee that is charged by a lender for the service of lending their money. The entire model of lending and borrowing is built upon this mechanic; without it there would be little incentive for lenders to, well, lend.
Interest is typically calculated in the form of a percentage of the balance of the loan added onto each repayment. This can be compounded daily, weekly, monthly, or yearly, and acts as the profit for the lender.
The interest rates that are charged on any loan are influenced by many things including the economy, the lender, the type of loan, and the credit score of the borrower. The Bank of Canada sets what is known as the key interest rate, which is the interest rate that typically influences all other interest rates charged in Canada.
In the history of the key interest rate it has never been set to 0%, which means the government has always charged at least some interest on any credit or bonds it has offered, which means it has always cost banks to lend money too.
So how can a car dealer offer a zero percent car loan in Toronto?
How do 0% loans work?
A zero percent car loan is essentially borrowing money without paying for the privilege to do so.
When your loan comes with zero percent, your monthly repayments would consist of nothing except equity in your car – a simple division of the principal loan amount divided by the number of months your loan agreement term is for.
This is the dream scenario for any borrower, as it acts more like a loan you might get from a friend or relative. If you remove the interest from a loan repayment, your repayments will be significantly lower and you won’t feel as if you are burning up money for nothing.
However, removing the interest rate also effectively removes the incentive for lenders to offer credit so there is more going on with a zero percent loan than meets the eye.
Too good to be true
If something sounds too good to be true it probably is, and this applies to zero percent car loans in Toronto as well.
While there are a small handful of legitimate zero percent car loans, usually only offered by the actual car manufacturer, the vast majority are fraught with hidden charges and stipulations.
Perhaps the most common tactic that car dealerships use when advertising a zero percent car loan is to over inflate the sticker price of the car from the outset.
Car dealers usually calculate how much interest a typical car loan would have earned them over the life of the loan and then add that amount onto the base price of the car. They can then offer that car for “zero percent interest”, but in effect you are paying that interest in the form of an exaggerated principal loan amount.
Make sure you pay attention to what a car is actually worth before signing on the dotted line for a so called no interest car loan, as there is a good chance that interest you are not paying has actually already been factored into the price.
Another common ploy used by car dealerships when offering zero percent car loans is to advertise them prominently to draw customers in, but then set the minimum credit score required to be so high as to disqualify almost all customers.
By setting the credit score requirement in the high 800s, all but the most perfect credit histories will not meet that threshold. However, the car dealer now has that customer in the store and so can proceed to offer them an interest rate that is perhaps higher than they would have accepted otherwise. Using high pressure sales tactics and the element of convenience, you might be surprised how often this bait and switch model works, and people can often walk away with a car loan that is significantly over priced.
It is worth remembering there is no such thing as a free lunch, so don’t assume a zero percent car loan in Toronto is any different.
Things to watch out for when applying for a zero percent car loan
Let’s assume you are considering applying for a zero percent car loan. Here are a few things to keep an eye on when attempting to get for one of these tricky loans.
Your credit score
The absolute best thing you can do to help your chances in securing a legitimate zero percent car loan (or as close as humanly possible to it) is to have the best credit score you can. Obviously this will depend on your personal circumstances and your credit history, but generally anything in the very good or excellent range (750+) will be in a reasonably good position to qualify, or at least negotiate, for a zero percent car loan.
If you have bad credit, you may not qualify for a zero percent car loan, but you can still get a good interest rate on your next loan. Autoloan.ca specialises in bad credit car loans, and doesn’t take ‘No’ for an answer when negotiating with Canada’s top banks. We treat every client with respect and pride ourselves on our commitment to customer service and support.
A bad credit car loan in Toronto can even be a great way to rebuild your credit score, as regular on time repayments will help improve your credit history. Then, when the time comes to negotiate a new car loan, you will be in a better position to secure a lower (or even zero percent) interest rate.
The worth of the car
Something to be very aware of is the actual market value and RRP of the car you are interested in purchasing.
As we mentioned above, one of the sneaky tactics many car dealerships use when offering a “zero percent” car loan is by actually building the interest into the price of the car from the outset. This will lean the principal loan amount will be approximately equivalent to the total amount of money you would have paid with a normal interest rate loan.
Thus, it pays to do your homework on how much your desired car is actually worth today. Look at the manufacturer’s website, check other dealerships, have a look at what the same dealer you are at would offer that car on a normal interest rate loan. It may be unavoidable to pay a slightly higher sticker price than the normal price, but anything too significant can indicate you are being taken advantage of.
Don’t be afraid to say ‘No’
Perhaps the biggest thing you need to be prepared for when you go in to attempt to get a zero percent car loan is to say ‘No’.
Car salespeople can be notoriously aggressive when it comes to closing a deal, and so they may resort to some high pressure sales tactics to ensure you sign the paperwork. Depending on your disposition this can be something you can ignore or it can be so stressful you agree to the deal simply to get out of the situation.
Remember that no one can force you to sign up for a deal you are not completely happy with, and that there are plenty of other dealerships you could go to for a better deal, or at least a less stressful sales process. No matter what your credit score, you are usually in a position to negotiate with the dealership as without you, they don’t make any commission regardless.
Stand your ground, ask calmly for their best deal, crunch the numbers on any offers they make, and ultimately don’t be afraid to walk away from the table if you don’t believe you are being offered the best.
Zero percent car loans in Toronto are usually too good to be true. No lender really wants to give away their money and not expect anything in return, so keep that in mind before you get dazzled by any zero percent car loans out there. There are often hidden costs built into these kinds of loans, and they may actually end up being more expensive than a normal loan.
If you are looking for a car loan with honest, low interest rates on a huge range of cars, Autoloans.ca is the place to go. We make securing the lowest possible interest rate our top priority, and with a range of over 7,000 vehicles to choose from, you’ll always find something you’ll love. Contact us today and get on the road tomorrow.
Top 10 Cheapest Used Cars On Toronto’s Kijiji
Getting your first cheap used car is almost a rite of passage for many first time drivers.
In the past, you could usually find these in the classified ads in your local newspaper. These days, many people find their used cars on Kijiji, the incredibly popular sibling brand to eBay.
Kijiji is favored by many looking to sell their used cars due to its lower selling fees compared to eBay, and many potential buyers would head to Kijiji first when they’re in the market for a cheap set of wheels.
So how cheap can you get a used car on Kijiji?
We’ve put together a list of the top 10 cheapest used cars on Kijiji that could still get you from point A to point B.
As with most used cars, they will require a bit of love and care to get them back in fighting shape, but if you have the money and the patience, they could reward you with many more years of faithful service.
This 18 year old Pontiac is a rare find on Kijiji.
Showing almost no rusting or chips in the windscreen, the ride looks in good enough condition to definitely be worth more than the incredibly low asking price.
The seller highlights it needs a new battery and solenoid, new tires and the AC needs recharging. However, these are all fairly minor expenses in order to get a roadworthy car at an unbelievably good price!
The car has been incredibly well maintained, with regular oil checks, rust-proofing and cleaning. The owner is a non-smoker with no pets so no need to worry about ashtray smell or dog hair.
The car has even had a lot of new work done including new PVC, new front brakes and brake lines, new rotors, new front coil springs, and more! This is typically a lot better than what you would find on other used cars on Kijiji.
If you’re looking to get into a luxury car on a used car budget, this might be the listing for you.
Despite being in her early twenties, this white Benz appears to be in relatively good condition. The seller admits it hasn’t been used for 18 months, but says that it starts up fine when parked. They do mention some rust, which depending on how severe it is, could mean some pricey repairs.
If you aren’t turned off by the potential rusting problem this could be a quick and cheap way to get into a high end european car. As always, be sure to get a car report to see if there are any black marks on the car’s record that might prevent it from being insurable.
This 2002 Accura EL looks to be in fairly good condition from the outside and the inside seems relatively clean.
However, something that could be of fairly serious concern is the mention of oil leaking from the engine. Typically, any issue that involves the engine can be costly to fix with the most expensive outcome being having to completely replace the engine. This can sometimes run up to $5,000, which can quickly turn your cheap used car from Kijiji into a money pit.
An oil leak could potentially be a cheap fix with an experienced mechanic, but make sure you do your research before you commit to this one.
The earlier version of Canada’s Car of the Year in 2006, this 1999 Honda Civic is a steal at $430.
The seller lists a new battery, good condition brakes and functioning headlights as key selling points. They do call out that the body is not in perfect condition, which may turn off some with strict aesthetics.
Something to note is that the listing mentions that “minor repairs” may need to be done in order to get safety certification, but no further details are given. This could be nothing, or it could be something to be concerned about.
Either way, it’s a good sign that the seller wants to transfer ownership officially at the Transportation Ministry as it implies this is a legitimate sale and not a sketchy scam, which is sometimes hard to find in the used car section of Kijiji!
For a relatively recent used car on Kijiji, this 2006 PT Cruiser seems almost too good to be true.
Although the seller has put an $800 asking price in the description of the vehicle, the fact they have listed it at $400 seems to imply there is wiggle room for negotiation.
From the outside, the car appears in pristine condition, with no obvious scratches or dents in the body. The PT Cruiser has a distinctive, modern profile which is a rare find when it comes to buying a used car for cheap!
The car also has relatively low mileage at 178,000 kms, so should be able to run for many more years to come. The seller does mention there to be a minor computer issue, but these generally tend to be easy fixes so that shouldn’t be a deal breaker.
For a reliable car that will get you from point A to point B, this 2000 Mazda Protege could be the car for you.
The seller writes that the car runs fine and doesn’t mention it needing any repairs to get back on the road. Aside from some small rust spots above the front wheels, this ride seems good to go.
With 260,000 kms on the odometer, this used car should still have plenty of life left in it. It was such a trusted model when it first launched in fact, that the Singapore Police Force used Mazda Proteges as their everyday fleet!
This is the car for you if you’re after a simple workhorse that you can rely on. Move on if you’re after something with a little more flair or style.
For a more family orientated option, this 2005 Grand Caravan is a great find!
Used cars on Kijiji tend to be smaller compact cars, so finding a people mover is a rare opportunity indeed. The listing says the car runs great, with some rusting on the body. This shouldn’t be too drastic to rectify, but ensure you do a thorough inspect before committing to anything.
If you can work with the rusted body, the interior has plenty of bells and whistles not often found in used cars on Kijiji. Power windows, built in DVD player, new front and rear brakes, new EGR valve, new oxygen sensor and new wheel bearings are all fantastic inclusions that make this a steal at $400!
Used cars on Kijiji don’t get more rugged than this!
This Chevvy pickup truck is perfect for any trades people needing to carry around tool boxes or building materials.
Coming in at a very reasonable $350, the seller lists this car as requiring wires to get up and running. Depending on how experienced you are with cars or how much your local mechanic might charge for wire installation this could be an expensive fix.
Other than that, the box has a durable hardwood floor and the tires are still in good condition, which should help you get to the worksite safe and sound.
260,000 kms is also a relatively good mileage for this kind of car, so could be a worthwhile investment if you’re in need of a sturdy vehicle to get around in!
A very recent 2007 model Hyundai Accent takes out the number two spot on our list.
The seller mentions that a new ignition cylinder, front wheel bearing and belt are needed to get this car up and running again, fairly standard par for the course when it comes to used cars on Kijiji.
Depending on how much your mechanic charges for these fixes, this could be an absolute steal of a car considering it is just over 10 years old and has less than 200,000 kms on it.
As it appears to be such a good deal, we would definitely suggest doing your homework and getting a thorough background check on the car. The last thing you want to do is fix it up only to find out it suffered an uninsurable incident in the past and can’t be driven!
Taking out the top spot as our cheapest used car you can buy on Kijiji (that isn’t a total scam) goes to this 2003 Suzuki Aerio.
Very little information is given in the listing besides the fact that the car will “need work” to pass safety and emissions testing. What exactly this means is anyone’s guess and could range from relatively cheap fix to expensive tear down.
Other than that, the car has 413,000 kms on it, which is pretty high but there should still be a few good years left in her if you fix her up.
Are you in the market for a used car? Don’t risk picking up a lemon, contact us today and choose from our range of certified used cars!
7 Tips to Save you Money On Your Car Loan Refinance Quickly
So you’ve managed to fill out all the forms, hand over all the documents, and fulfill all the criteria to get yourself a car loan.
You’ve picked out your dream car, the keys are yours and you’re finally out on the road. Congratulations! But after a year or so you start to wonder…
Is this the best deal I could be getting?
Car loan refinancing is something that everyone with a car loan thinks about, but often can be too confused or worried about incurring extra costs.
Should I try to get a lower interest rate but add another 12 months to the term? Should I try to increase my monthly payments to pay it off sooner? Will this all end up saving me any money?
We know all of ins and outs of car loan refinance can be daunting, so we’ve put together a little list of some of our best tips to keeping more money in your pocket when it comes to re-negotiating your car loan.
1. You Can Refinance Your Car Loan Anytime
Generally speaking there are no time restrictions on when you can refinance your car loan. In fact, if you really wanted to, you could refinance your car loan before even making your first payment!
Of course, this is probably an unlikely scenario as you have just spent all that time filling out applications and getting approved.
So when should you refinance?
The best time to look at refinancing your car loan is when either your financial circumstances change (for better or worse), your credit score improves, or if you have a variable rate loan, when the Bank of Canada makes a change to the interest rate.
Keep an eye on all of these factors and once something favourable arises, get ready to pounce to save some extra cash.
2. Be Aware Of Any Early Exit Or Prepayment Fees
Pretty much every loan will have some kind of penalty built into it for paying off the loan earlier than the agreed upon term.
This is to cover the lender’s bases and ensure they are still making some money out of the transaction, as they will be losing out on a lot of interest payments if their customer pays off the loan sooner than expected.
Car loan refinancing is essentially paying off the entire balance of your current loan with money lent on the new loan, and so would count as a prepayment or early exit.
Typical early exit fees can range from a few hundred dollars to a few thousand, so be sure to read up on all of your current loan’s rules and fees before making the jump to a new one.
3. Leverage Your Improved Credit Score
If your credit score has improved since you took out your current car loan, it is definitely worth shopping around with other lenders to see what they can offer.
A better credit score shows a potential lender that you are more likely to repay your loan, and thus would be a good customer to have. This makes them more inclined to give you a better rate to entice you over to their services.
Your credit score can improve when you make consistent on time repayments on credit cards, utility bills or other debts. It can also improve after a set amount of time following a credit inquiry, usually several years.
Even a modest improvement in your credit score can make a huge difference when it comes to car loan refinance. Sign up for an online credit score tracking service and you’ll be ready to renegotiate whenever it goes up!
4. Crunch Your Numbers Carefully
The lure of a lower interest rate can be almost too much to resist, but be sure to pay attention to the new length of your loan term.
For example, if your current car loan rate is 8% on a $25,000 loan over 48 months, your monthly repayments would be $610.32. After 12 months, your remaining loan balance is sitting at $19,476.51 and you have paid $1,800.39 in interest.
You then decide to look into car loan refinancing, and you find a new loan that offers you a lower interest rate of 6%, but will add an additional 12 months onto the term of your loan.
You use this new loan to pay out the remaining balance on your existing loan, and your new monthly repayments are now $457.41. It seems like you’ve definitely saved money, as your monthly repayments have gone down over $150!
Not so fast.
With the additional 12 months added to the length of your term, despite the lower interest rate, you will end up paying $2,479 in interest at the end of the 48 months. Combined with the $1,800.39 you had already paid on the original loan, you will have paid a total of $4,279.51 in interest.
If you would have stuck with the original loan, you would have paid a total of $4,295.51. Thus, you have only really saved $16, and this doesn’t take into account the almost guaranteed early exit fees you would have had to pay on the original loan when you refinanced.
Clearly it is important to run your numbers carefully when looking at car loan refinance. You may find that refinancing to get lower monthly repayments at the expense of paying more interest overall is what you need financially to achieve a better cash-flow position.
Deciding to refinance will depend on your personal circumstances, but always make sure you pay attention to the numbers as even just a slight change can make a big difference when stretched out over a couple of years!
5. Be Wary Of Creating An Upside Down Loan
An unfortunate side effect of car loan refinancing can be creating what’s known as an upside down loan.
An upside down loan is where the thing you are paying off, such as a house or in this case a car, is worth less than the amount you owe.
This scenario usually only occurs when you refinance your car and add time to the length of your loan without a commensurate decrease in interest rate.
As cars depreciate the second you drive them off the dealership lot, you will want to try and avoid paying much more than what the car is worth, which is why you definitely do not want an upside down loan.
This point relates to the previous tip and just goes to show that spending the time to crunch your number properly really is the best advice anyone can give you when it comes to car loan refinancing.
6. Don’t Miss Any Repayments During The Refinancing Process
In a perfect world, your new loan would begin just as your old loan was cleared and it would just be a simple matter of paying the new lender the agreed upon monthly amounts.
Unfortunately, things rarely work out that cleanly.
Be very careful about missing any payments on your current loan whilst you wait for your new loan to take effect.
It may be tempting to let the payment date lapse as you hope that your two lenders are communicating with each other, but should you miss the repayment date on your current loan before your new loan has paid off the balance, your credit score might suffer the consequences.
A missed payment on your current loan can even make it harder to refinance with your new loan, as it can appear to lenders that you might have missed that payment because you could not afford it.
Generally, it is better to be safe than sorry when it comes to car loan refinance and to just make your normal repayment on your current loan until you get absolute confirmation from both your lenders that the new loan has gone through successfully.
The worst that can happen in this scenario is that you make an extra payment on your old loan and the lender simply has to refund you. You might be without the cash for a couple of weeks but your credit score will be safe and sound.
7. Know Your Options
None of the above tips will matter much if you don’t even know what your options are to begin with.
Make sure you stay proactive and do your research when looking into car loan refinancing. The more you know, the more you can potentially save and put that money towards more exciting things!
A great source of potential new car loans for anyone looking to refinance can be online loan brokers, such as AutoLoans.ca.
We have established strong relationships with many credit providers, and can negotiate extremely competitive rates when it comes to refinancing car loans.
Simply contact one of our dedicated team members and they will be more than happy to walk you through your options and get you saving money fast!