MONEY · CREDIT · Canada
The dealer’s 0% is really a loan at 3.25%
You are offered 0% financing, or $2,500 off if you pay another way. That is not a gift against nothing: it is an interest rate, and it can be worked out.
By the Yoseri News desk · · 5 min read
This article describes the rules of Canada. Income tax, pension plans and tax-sheltered accounts do not transpose from one place to another.
These are not the rules of the region you picked (): this article describes those of Canada. The reasoning holds everywhere; the account names, the caps and the ages do not.
The dealer puts two offers on the table for the same $32,000 car: 0% financing over 60 months, or $2,500 off if you finance elsewhere. The 0% draws you in, because zero looks like it costs nothing.
Zero is very much up for debate. By taking the 0%, you give up $2,500 — and giving up $2,500 to spread $32,000 over five years is exactly what an interest rate is.
The calculation, in one line
With the 0%, you pay 32,000 ÷ 60 = $533.33 a month, and $32,000 in total.
With the rebate, you borrow 32,000 − 2,500 = $29,500 elsewhere. The question becomes: at what rate would that $29,500 also cost you $32,000 over 60 months?
The answer is 3.25%. That is the break-even. Below it, the rebate wins. Above it, the 0% wins.
The four cases, in figures
| What you pick | Amount financed | Monthly | Total paid |
|---|---|---|---|
| 0%, no rebate | $32,000 | $533.33 | $32,000 |
| Rebate + loan at 3% | $29,500 | $530.08 | $31,805 |
| Rebate + loan at 4% | $29,500 | $543.29 | $32,597 |
| Rebate + loan at 7.99% | $29,500 | $598.01 | $35,881 |
At 3%, you pay $195 less than with the 0%. At 7.99%, you pay $3,881 more. The 0% is neither good nor bad in itself: it is worth whatever the loan you can get beside it is worth.
Why the 0% exists
Because it moves the negotiation. A $533 monthly payment compares to a rent; a $32,000 total compares to another dealer. The seller prefers the first conversation.
And because the rebate comes out of the maker’s margin. So does the 0% — but it is funded by the group’s own lender, over a period during which the customer stays with the brand.
What this calculation ignores
The negotiated price, first: both offers here start from the same $32,000, which is not always the case. A rebate can also be conditional — model, month, year end.
It ignores insurance, the extended warranty and administration fees, which often slip into the monthly payment and not into the advertised price. And it assumes you hold the 60 months: paying off early changes the ranking.
So what does this mean for you?
That the only comparable figure is the total paid, never the monthly payment. Two offers at $533 a month can differ by $4,000 at the finish, and nothing on the contract will tell you.
Yoseri’s Debt page puts your loans side by side with their rate and what is left to pay. It does not negotiate for you: it stops you comparing one monthly payment with another.
Yoseri News is an educational publication. Nothing in this article is investment advice, a recommendation to buy or sell, or tax advice. Yoseri is registered as neither an adviser nor a dealer with any market authority. The tax rules described here are those of Canada, and the limits change: check your own entitlements before acting.