4 Common Car Loan Promotion Myths Debunked
If you need a new(er) car, you may be tempted by the promise of too-good-to-be-true offers from dealerships. We separate fact from fiction and guide you to find the offer that’s right for you.
If you’re on the lookout for a car, you may be leaning towards one of the many auto loan special offers that sound too good to be true. Are these deals just marketing tricks, or can they be the right solution for you?
When browsing the web for a good car and finance deal, you’ve probably seen familiar incentives like:
- 0% Financing
- No Credit Check Car Loans / Guaranteed Approval
- Zero Down Car Loans
- Cash Back Car Loans
Are there sales tactics at play here to draw you in, or is there some advantage for you to sign up for one of these offers?
Let’s look at each one to figure out which offer is a marketing ploy, and which is the real deal.
1. Is 0% car financing in Canada real?
Reserved almost exclusively for brand new cars, 0% car financing is an offer that charges you zero percent interest on your car loan. Aside from the principal loan amount, taxes, and fees, you aren’t being charged anything to finance your loan. That sounds as though it will be a no-cost borrowing situation. But is that likely for your average car buyer?
Car dealers or lenders are not likely to want to earn zero interest from you. After all, interest charges are the way lenders earn their cut. It can make sense in certain situations, though.
How do you qualify for 0% car financing?
The most common type of customer that qualifies for these offers has a great credit rating. Do you know your credit rating? Find out your credit score for free at Borrowell.
Since many car shoppers have weaker credit ratings, these promotions are often used as a “bait and switch” tactic, just to get more people into their sales centre. Once you’re on the lot, the dealer is hoping you’ll find the car you want, and that you’ll accept less generous financing terms. If you feel you’re being baited and switched, be prepared to walk away and check out other options.
Also, keep in mind that low- and no-interest car loans are known as subvented rates. It doesn’t make sense for a lender to charge less interest than the bank prime rate – essentially, they’re losing money! Whenever there’s a zero-interest loan option, the manufacturer has arranged the lower rate with the lender as a purchase incentive for you. There’s almost always an alternate offer you should check out like massive cash rebates if you choose a non-subvented rate.
It’s harder to get approved for 0% interest loans unless you have great credit, are a loyal customer, or you’re a customer who already qualifies for a very low-interest rate. But you might be able to qualify if you meet some other condition that lowers their risk, like having a co-signer or making a large down payment.
Make sure to examine the fine print of your agreement. The 0% interest rate might only apply during one part of the loan. Or you may find that you owe a lump sum at the end of that part of your loan, at which point, they may offer you a much more expensive loan to finish paying it off. That means you’ve only deferred the interest until much later when it might even cost you more.
Fact or Fiction?
No-interest car loans are real. Although this is not a scam, it is rarely as cost-free as 0% interest sounds, and it is not usually viable for customers with a low credit score. Also, 0% financing is normally reserved for brand new cars and some manufacturer-certified pre-owned vehicles.
If your credit is less than stellar, 0% financing isn’t off the table. Focus on improving your credit score, and in a few months, you could qualify for this offer.
2. Can you get a loan with ‘no credit check’ and ‘guaranteed approval’?
If you’ve ever seen an auto loan promotion that skips the credit check, you may think it’s a great way to bypass the bad credit barrier. You may be thinking, “this is going to make things much easier.” Is getting a car loan without a credit check even possible?
If it feels too good to be true, then you’re usually right in this case. Lenders who are willing to offer you a car loan without first doing a credit check know nothing about how likely you are to pay them back. Rest assured, the lender always makes sure that they are protected. They’ll do this by charging you shockingly high fees and/or interest on such a loan.
They are counting on customers with less-than-glowing credit ratings who worry about being denied a loan and would gladly avoid the credit check process. No-credit and bad-credit clients are often willing to accept terms that add excessive costs and conditions.
Beware of a much darker lining to these predatory tactics. Look carefully through the smallest details in these offers for extra surprises, like unusual repayment options and unusual penalties. You could find pre-payment fees are ridiculously high, leaving you locked into a high-interest car loan for the whole term. You don’t need to accept these offers just because of a low credit rating.
Even more alarming is the potential to fall prey to an outright scam. Sadly, there are scammers out there who will take advantage of your situation, and there are several ways in which they pretend they are true lenders.
Canada Drives only works with certified dealers and established lending institutions to help customers of all credit ratings. We can help you steer clear of shady lenders and put you on the road to better credit.
Fact or Fiction?
Although factually possible and very tempting, ‘no credit check loans with guaranteed approval’ are not usually advisable and are often a predatory tactic aimed at desperate customers.
3. Is a car loan with zero down payment possible?
With a zero down payment offer, you can avoid paying a significant amount of money upfront for a car loan. It’s a welcome opportunity for a car buyer who can’t afford a cash payment upfront. And while a down payment will boost your chances, it isn’t an essential requirement.
The primary reason car dealers and lenders look for down payments is to offset the financial risk of you owing more for that car than it’s worth in case you default on the loan. However, if you have good credit or are working with a dealership that specializes in helping bad credit customers, no money down is a viable option.
How to qualify for zero down payment
For many car buyers, the zero down payment option is an absolute must. The best chance of getting approved for such a loan is to maintain a good credit score, showing your lender that you are not a risk for non-payment.
For even greater chances of approval, you should consider applying with a co-signer and/or shop for a vehicle that’s well within your budget. Remember, it’s all about managing the risk for the lender.
Is zero down possible with bad credit?
It is possible for customers with bad credit to qualify for zero down car loans. Some dealerships and lenders appreciate that life comes with financial twists and turns, and they’re set up to help bad credit customers get in the driver’s seat and on the road to a better financial standing.
Canada Drives is partnered with a network of dealerships nationwide that offer the best zero down options for customers facing all types of credit situations.
Fact or Fiction?
Zero down payment loans are real. With no money upfront, you’ll incur a higher monthly payment instead, but it’s a useful option for customers who need a car but don’t have a lot in the way of savings.
4. Are cash back car loans possible?
Cash back car loans work by adding extra money on top of the amount you were going to finance and giving you that difference back in cash. When your cash flow is in a crunch, a cash back car loan can be a welcome solution. Essentially, it means that cash-strapped customers don’t have to apply for a personal loan on top of a car loan.
With cash back on a car loan, you can spend the money on whatever you like. As a financial tool, you might use the extra cash to pay down a higher interest debt, like a credit card? However, if you don’t have any high-interest debt and don’t need the extra cash, a cash back offer will not hold much weight with you.
Fact or Fiction?
Cash back loans are real but the most obvious negative about cashback car loans is that you are taking on a larger loan than what that car normally requires. It adds to your car payment amount, and tacks on sales tax. Remember, the small amount you’re borrowing as cash back is being financed over your whole car term, and you’ll pay interest on it for years.