There’s a difference between financing a new car and financing a used one. And if you’re looking to get a used car in Canada, you’d have noticed the difference by now.
Knowing all you can about car financing can help you find the best deal. You need to build your knowledge about how car loans work and where to find financing. It’s also important that you know about your credit history. Having as much knowledge as possible gets you prepared for what lies ahead. While this article talks about some important car financing tips, however, if you want to understand the process, you can take a look at car financing basics mentioned here.
Here’s what you need to consider before financing a used car in Canada:
1. Don’t go to the dealership without knowing your credit score
Financing a car isn’t the same as financing a house. Having bad credit doesn’t mean you can’t get a car loan. But if you have bad credit, you’ll only have to deal with higher interest rates. You’ll often see that dealerships claim to offer low interest rates. But you may not qualify for such low rates if you have a low credit score.
2. Get financing quotes
It’s always advisable to find as many loan sources as you can before settling on a company or dealership. That way, you’ll get enough quotes to make a decision. Trying to find a company to borrow from can be likened to shopping for a valuable commodity. Get quotes and compare the loan amount on the table. See what the terms are and the duration of each loan. You’ll also need to compare their interest rates. Only sign a contract that offers the best deal.
3. Make a sizable down payment
Once you know the total price, we recommend making a down payment of up to 20% at the very least. That’s because the bigger your down payment, the more money you get taken off the loan initially. You will then enjoy decreased payments and that may have a positive effect on the interest rate too. In a nutshell, making a sizable down payment helps you save in the long run.
4. Make other payments in cash
You’ll always have to make other payments in the form of fees. From sales tax to documentation and dealership fees, you need to consider them all when buying a used vehicle. Do not roll them into your loan.
Instead, we recommend paying for all other taxes and fees in cash. Adding more fees to what you already owe increases your debt. In fact, the dealership won’t hesitate to pay the sales tax or include the fees in your loan. Don’t let this happen because this may increase your interest.
5. Pay your loan faster if you can
Try your best possible to keep the term short. A shorter loan term may mean more payments made every month but this is good for you. Making more monthly payments helps you save more in the long term. When you pay the loan off faster, you benefit from having less interest to pay over time.
While you have the option of stretching your payments for more years, don’t let it tempt you. That’s because it will only cost you more with a rise in interest rates. This could even leave you with a car that’s no longer worth its price when you pay off eventually.
When you decide not to buy a new car but go for a used car instead, that could mean thousands of dollars saved. But used car financing tends to be more expensive, so get yourself prepared. Being persistent and patient when buying your new-to-you vehicle can help you find the best auto loan deal.