Car manufacturers are working hard to earn your business. The global chip shortage has reduced the total number of new cars that are available in Canada.
This lack of cars has forced carmakers and dealerships to try and close every potential sale.
We live in a buy now, pay later economy (bnpl) and with the rising costs of new cars, most of us need a car loan in order to realize our goal of owning a vehicle.
Interest rates have been at all-time lows, so what some carmakers are doing is offering zero percent financing for “well-qualified” borrowers. Who can argue with a zero percent loan but that is not always a great deal?
The only way to know if the deal is actually a good one is by crunching the numbers.
What is “Well Qualified”?
This is an ambiguous term that was most likely written by lawyers to protect the lenders from having to underwrite too many zero percent loans.
The lender can set their own policy on what constitutes “well qualified” but safe to say your credit score should be north of 700.
Zero Percent Does Not Mean Free
Some prospective car buyers presume that zero percent means free. There are usually additional fees that are associated with these London auto loans and only certain cars qualify for this type of financing.
Another variable to keep in mind is the dealership selling the car is not going to earn any revenue from the financing. This lack of revenue means the dealership will need to charge you the full asking price for the car or they (the dealership) will lose money.
Instead of focusing on the zero percent, you should look for a deal that is competitive based on the car you want to buy and can afford.
On the topic of affordability, this would be a great time to review your finances to see how you are doing.
Lenders do not want to give loans to borrowers that are carrying too much debt, even if they have a fantastic credit score.
The most a lender will lend on average is up to 40% of your gross take home pay.
If you made $4,000 per month then your maximum debt load would be 4000*0.4=$1,600 so all of your current debts plus the new car loan cannot exceed $1,600 per month.
Some lenders may let you go over 40% but carrying that much debt is ill advised. If you experience a loss of income and frankly most of us have lost income due to the pandemic, it could put you in a very bad financial position.
Making the Right Move
Since interest rates are low and there is a large number of lenders that are offering London car loans, why not head over to your local dealership and find out what options are available?
You have nothing to lose and with the car shortage, now may be the only time you will be able to get a new car until the chip shortage issue has been solved.