In Canada some companies providing loan that comes with Zero Interest Rate. As the name implies, zero-interest loan is a loan with no interest payable at the outset. But can this be true? Why would anyone offer to pay you the money you need to buy a product/service and not even charge you any interest? Let us share an example that will make things clearer than a crystal.
Mr.Alfred has been considering buying a car worth 30000$ CAD for a while now. He comes across an advertisement where an automobile financing company offers the same vehicle at 35000$ CAD with zero interest and easy installments. Now Mr.Alfred is tempted as there is zero interest, and the monthly installment he needs to pay is very comfortably within his budget of 1000$ CAD. He buys the car without realizing that with all the documentation charges and inflated prices, he delivers CAD 35000 instead of what would have traditionally cost him anywhere between CAD 33000 to CAD 34000 had he opted for the normal interest included in EMI’s method.
This is a very clever marketing strategy employed by financiers who are aware of the psychological impact a Zero Interest Loan In Canada has on the consumers, and they utilize this knowledge to the fullest. Zero percent interest loans usually have hidden or built charges to cover the costs they need for loaning the amount, such as application fees, origination fees, and prepayment penalties.
Let’s take a look at the companies in CANADA that offer 0% Interest Rates:
Before we begin, let’s understand what kind of companies offer Zero Interest Rates and why they do so. Usually, automobile companies, large-scale furniture stores like Ikea, Electronic stores and Credit card balance transfer options are provided at Zero Interest Rates.
Some examples of furniture stores that offer Zero Financing in CANADA are The Brick Financing, Ikea Financing, Urban Barn Financing, Leon’s Financing, and WayFair Financing.
Refresh Financial, Borrowell, and Fairstone Financial are other personal or business financing examples.
Financial institutions also offer zero % interest rates on special credit card deals. A credit card can receive a zero percentage interest rate in the initial period. Balance transfer credit cards also come with the advantage of shifting your existing high-interest rate credit card balance to the new card with zero interest so that your repayment can be reduced considerably. This is because you have the opportunity to benefit from the interest-free duration. If you can pay off the debt in that zero-interest period, you will significantly reduce your debt burden.
How can one qualify to get a ZERO Interest Loan?
The following requisites are needed to qualify for a ZERO Interest loan:
– A credit score of 650 and above is a good score. Run a credit check, clear discrepancies, and pay off small liabilities.
– Repayment capacity: Salary stubs and tax payment receipts will be required for those employed. Financial statements that indicate your organization’s cash flow are needed for self-employed people.
– A decent debt-to-income ratio- An ideal ratio is 35-40 % of your total income, including all your existing loans. Hence, try to pay off previous loans that might have come close to completion.
What documentation is required when applying for a loan with zero interest?
While some lenders require you to apply in person, others allow you to apply online or over the phone. Let us take a look at the details that will be needed:
– Personal information like your name, residence, date of birth and SIN.
– Provide financial details like salary, expenditures, current debts, assets, and bank statements.
Helpful tips before you apply for a Zero Interest Loan
An important point to note here is that Zero-interest loans look so alluring that we usually buy the product without having the actual need for it. So, think twice before going for such a loan. Do you need this product/service?
Pay a good portion of the loan as a down payment. Though there is zero interest on the loan, eventually, you are the one who is going to pay off the principal. So, do not become prey in the zero-interest game. Be sure that you can pay off the principal amount comfortably without hampering your day-to-day life. No furniture or automobile is worth the discomfort you face when you cannot make the payments in time and are staring at either a default or another loan to pay off this loan. This is the exact cycle of a debt trap.
Factor in all the hidden and associated charges with the loan amount. Depending on the type of product/ service you buy, the interest-free period may be limited to 12 to 18 months. After that, the service provider can charge you interest for the remaining loan tenure. If you could close your loan within this duration, that would be fantastic, as you may have gained the advantage of Zero Interest loan in Canada.
Defaulting on your installments also authorizes your lender to start charging you interest. All of these are mentioned in the fine print of the terms and conditions, which most of us show no interest in reading. Most no-interest loans come with a deferred interest clause allowing the lender to charge the interest retrospectively on the entire loan balance if you default on the payments or fail to pay off your loan within the specified and agreed-upon duration.
– Another important factor is that prices of products/services are often inflated to ensure profits for the financers. This is a classic way of ensuring the financiers keep their business from running in losses. Either the prices are inflated, or charges are added to the overall cost of the loan to ensure that the service provider makes a profit by loaning you the amount needed to make a purchase.
– It is best to compare different lenders like your bank, credit associations near you and online lenders before applying for the loan. Consider factors like the loan amount required, the duration of the loan and the fees involved. It is always advisable not to go for the first offer that you come by and do thorough research on what suits you.
– Zero-interest loans encourage the concept of impulsive buying. Hence, when you come across an offer, always think with a cool mind, stall the decision for as long as needed, and if you still feel that the purchase is necessary, then do your research and go for the offer that best suits your requirements and financial condition.
It is always preferable and considered wise to save and buy a product/service by paying the entire amount upfront. Fortunately, such zero interest loans in Canada always come to our rescue when we cannot afford them. If we do proper research and planning, we can save on huge interest rates and payments and still buy our dream product/service. We often sacrifice our dreams and goals as we may not be able to afford a particular product at that moment. Financing options are of great help if utilized properly and in a planned manner.
Q. Does a Zero interest loan in Canada impact my Credit score?
A. Yes, a Zero Interest loan is still a loan. Prompt repayment adds to your credit score, and defaulting on payments impacts your score negatively.
Q. Is a Zero Interest percentage loan option legal in Canada?
A. Yes, interest-free loans are perfectly legal and allowed in Canada.
Q. Can I get a Zero-interest PERSONAL LOAN in Canada?
A. No, lenders do not offer Zero% Interest Personal loans in Canada. They are mostly provided for automobiles, electronics, furniture, etc, as personal loans are too risky to be issued without any interest fees.