Purchasing a new or used car represents a major financial decision for most Canadians. Very few buyers can afford to pay cash outright for vehicles, making car financing essential. However, financing your first car can feel daunting if the process seems confusing. Follow these key tips to simplify getting approved for affordable car financing.
Check Your Credit Rating
Before even visiting dealer lots for car financing, request current copies of your credit reports and scores from Equifax and TransUnion. Your credit rating heavily influences the loan terms and interest rates lenders offer.
Boosting your credit score now means better car financing rates and saves thousands over the loan term. Monitor your reports until you apply for a loan.
Save for a Down Payment
Putting down 20% or more of the vehicle purchase price results in lower monthly payments, interest fees, and shows the lender your commitment. Setting an aggressive savings target for your down payment and diligently transferring funds into your car account makes this possible. Even 10% down improves approval odds and interest rates significantly compared to $0 down car financing requests.
Get Pre-Approved for Car Financing
Receiving official pre-approval for car financing before visiting dealer lots keeps you in control. Pre-approval involves completing a full loan application, having your credit pulled, and getting officially approved for a specific loan amount and interest rate. Armed with pre-approval, you negotiate from a position of strength knowing the monthly payments work for your budget.
Compare New vs Used Cars
Crunching the numbers on total costs over the first 5 years of ownership – including depreciation, insurance, fuel usage, and repairs – may reveal buying used makes more financial sense. Used vehicles also require smaller auto loans. However, new cars come with the latest features and technology, as well as warranty coverage for defects. Assess your situation.
Understand Key Loan Terms
Not all car loans are structured equally. Compare options by carefully evaluating:
- Interest rates – fixed or variable
- Loan repayment period lengths – longer means lower payments
- Size of down payment required – impacts loan amount needed
- Any prepayment penalties – avoid loans punishing you for early payoff
Crunch total interest costs over loan terms from 2-8 years to pick the most affordable option.
Avoid Long 8 Year Loans
While enticing for lowering payments, navigating 8 year car loans means paying significantly more interest over time while still owing money long after the vehicle lost value. Unless absolutely necessary, stick to shorter 2-4 year loan terms to pay the vehicle off faster while it still retains reasonable trade-in or resale value.
Skip the Dealer Financing Push
Many dealers incentivize financing through them by promising rebates or artificially lowering interest rates only to make up the difference by hiding fees in the fine print. Avoid this trap by getting pre-approved beforehand through your own bank, credit union, or auto financing company.
Check Current Incentive Offers
New car manufacturers often subsidize low interest rate promotions through partnerships with preferred lenders to entice buyers. When shopping, always ask dealers about current incentive financing offers on the models you’re considering to potentially save on interest.
Keep Your Trade-In Separate
If trading in your current vehicle, avoid bundling its value into your new car purchase price and loan. By keeping the transactions separate, you retain leverage in price negotiations. Sell privately or to a dealership paying top dollar for your trade to lower your loan amount.
Drive Off the Lot Worry-Free with Get Approved Canada
Armed with these car buying and financing tips, purchasing your next vehicle becomes much less daunting. Remember, the auto finance specialists at Get Approved Canada are here to help make financing easy and affordable.