What are my vehicle financing options?
Dealer financing
Just about every dealer can provide a car loan. The types of financing dealers provide can vary. They can provide financing through a loan from:
- the auto manufacturer’s financing division
- a financial institution
- independent financial institutions, such as an automotive financing company
There are two main advantages to doing business directly with your auto dealer:
- They take care of the whole process
- Interest rates are generally lower (for new vehicles specifically)
However, dealers offer better rates because they use instalment sale
contracts, which means that the lender owns your car until it is
paid in full.
Remember : If you want to sell your vehicle, you need to fulfill your contract and the dealer must agree to the sale.
Bank financing
Your financial institution may also offer vehicle purchase
financing.
You have two options:
-
Car
loans
Car loans are particularly attractive when purchasing used vehicles are often higher. Unlike with dealer financing, you usually own the vehicle (except in the case of taking guarantees). So you can sell it whenever you want.
- Note: To ensure that the money is used to pay for your vehicle and not spent on other things, the cheque is made out to both you and the dealer.
-
Line
of Credit
Personal or home equity lines of credit can give you good repayment flexibility. You can also use lines of credit for other projects, such as renovations or a family trip. However, this option calls for the discipline to repay your debt.
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What steps do I take to finance my vehicle?
Generally, these are the steps you’ll go through:
- Receive, negotiate and accept the dealer’s formal vehicle sale price offer.
- Tell the dealer that you will be financing your vehicle
- A) Ask the dealer to research and obtain the loan
B) Contact your financial institution to determine your best financing option - Negotiate the interest rate and terms for your loan
- The lender checks your credit history (through the dealer or your financial institution).
- Sign the contract
What do I need to consider for my vehicle loan?
Your vehicle budget
Before you buy, make sure that the car you want fits your personal budget.
A vehicle loan is a recurring monthly expense. You must also take
other car-related expenses into account on top of the loan. These
include insurance, maintenance and gas.
Calculate your car budget!
The term (period) of the loan
It is tempting to spread payments over a long period of time so you have small monthly instalments. Remember, the longer you take to pay off your loan, the more it costs you. To help you choose the term, ask the lender for the total amount you will have to pay.
Pro tip : Always look for an open loan, either from the dealer or the bank. You can pay it off faster if, for example, you receive a salary increase or a tax refund.
Interest rates at 0%
Pay attention to 0% dealer offers. They are not always as good a deal as they seem to be. If the rate is 0%, the interest charge is usually already included in the vehicle sale price, so in the end you pay the interest cost. Office de la protection du consommateur recommends checking the contract credit rate and charges. This may include, but is not limited to:
- The interest rate
- Fees such as insurance
- Administration fees
- Discount for a cash payment
So even if the interest rate is 0%, the credit rate may be higher.
Remember : You are never required to buy death or disability insurance from the dealer.
Your credit history
Regardless of the type of vehicle financing you choose, the lender uses several criteria to offer you a loan. You can count on this: The lender will review your credit history and check your debt level to determine whether you qualify and the interest rate you will be charged.
Avoid unnecessary credit score requests. If you shop for other
financing products (such as a mortgage) at the same time as your car
loan, the credit score requests for those products can tarnish your
credit history and your credit
score. It’s better to limit the number of simultaneous credit
score requests.
If your credit history is poor or non-existent:
→ Here
are 8 tips to improve your credit
The bank could also require a copy of the vehicle sale contract. In some cases, the criteria your financial institution and dealer take into account may differ. You could be approved by one and rejected by the other.
Negotiation
When purchasing a vehicle, you can negotiate the financing terms, sale price and options and accessories. Here are some tips to help you get the best deal.
- Check out promotions offered by other dealers and bring them with you. They can help you push the seller to make a better offer.
- Don’t tell the salesperson that you need a car quickly. That gives them an advantage in the negotiation.
- Don’t let a friendly salesperson unduly influence you. Do you think you’re getting a good deal? This is not always the case.
- Remember to negotiate for additional vehicle options and equipment. The dealership often has more flexibility on the price and installation of these products. You can also remind them that aftermarket vendors often sell accessories for less than the dealers.
- The seller may dig for personal information they can use during negotiation. Bring the conversation back to the vehicle you are interested in.
Pro tip : Negotiating the price of the vehicle before the financing stage usually reduces the total cost.
New or used?
As mentioned above, a bank loan may be a better option when buying a used vehicle. Your choice of used or new may have an impact on the type of financing you choose.
Here’s some useful information to help you decide.
The advantages of a new car include:
- The latest technologies
- Potential for competitive interest rates
- Longer warranty at no extra cost
On the other hand, disadvantages include:
- Higher price
- Generally more expensive auto insurance
- Depreciation: As soon as you drive the car off the lot, it can lose up to 30% of its value
The advantages of a used car include:
- Cheaper price, so it’s more affordable
- Auto insurance at reasonable prices
- Recycled parts easy to find for most cars 5 to 10 years old
Drawbacks include:
- Greater foreseeable need for repairs
- Used cars are sometimes less safe
- Some vehicles are no longer under the manufacturer’s warranty
A car is a major purchase and monthly payments can take up a lot of your budget. This is why it’s important to do your homework before signing a purchase agreement. With the right vehicle and a payment that fits your budget, all you have to do is drive!