Can I Finance a Car in Canada with No Deposit?

By John Hayden

Sure you can! Those Zero Down Auto Loans signs are for real.  Financing a car with no deposit is painless, through dealerships – like Hayden Agencies – that are seamlessly tuned into their customers’ demands.  They know that many drivers need to upgrade or replace their wheels when budgets are tight. This is when a no-deposit loan is a real lifesaver.

Why Do Lenders Want Down Payments Anyway?

As a general rule, deposits are a form of protection for both borrowers and lenders. As automobiles depreciate steadily over the years, the outstanding balance on loans can be higher than the market value of the automobiles that secure them. Consequently, an up-front deposit (in cash or as a trade-in) helps avoid this undesirable situation.  This is because it lowers the amount borrowed, usually by 10% to 20% of the vehicle value. However, some dealers and lenders are happy to close auto financing deals with no cash down. And that may even apply to borrowers with subpar credit scores.

Zero Down Loans May Be More Expensive

Once they sign the loan documentation, buyers can drive straight off the lot. However, chances are that they’ll be paying a higher price overall, with steeper interest rates on larger amounts, and often for longer terms. Canada’s national average interest rate on car loans is 6.79%. However, this can rise to 30% or 40% in extreme cases. The actual figure in each credit agreement depends heavily on a wide variety of factors: specific year, model and make; buyer income, credit history and score; and loan term, down payment, and co-signatories.

Can I Get Approved for a Zero Down Auto Loan?

Your chances are good! A quick check of second-hand car financing conditions across Canada (in November 2022) shows there’s plenty of choices for everyone, with many bargains – and a few pitfall as well. Here are the main used vehicle financing parameters:

  • Loan Terms vary from just three months (is it really worth the hassle?) to an entire decade (120 months) available from only one agency;
  • Interest Rates range from an inviting 3.9% to a scorching 46.9% with 4.9% to 8.5% the most common figures;
  • Eligibility Requirements include proof of domicile with at least three months’ regular employment and a threshold income of $1,500, and (for a single lender) no more than one bankruptcy.

What Do Lenders Want from Borrowers?

When granting loans, Canadian banks, credit unions, and dealerships all share a common goal: they want to be paid back promptly, at a fair interest rate. But zero down car loans carry higher financial risks, so they charge more interest, based on your replies to these three questions:

  • Are you paying a good-value price for your selected vehicle?
  • Are you likely to pay back your loan promptly?
  • Can you afford to keep up these payments for the entire term of the loan?

Tips on Financing a Car with No Deposit 

When buying a pre-loved vehicle, the money gurus at Hayden Auto Loans have three pieces of excellent advice for eager buyers:

  • Keep your expectations realistic;
  • Dream as big as you want, but always plan for the worst; and above all
  • Opt for a reputable dealer and avoid predatory interest rates.

    Looking For Quick & Easy Financing?

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