The freedom that comes with owning a car is definitely one of the most attractive factors to a first-time buyer. However, first-time buyers need to consider various options in order to choose the most suitable financing for their new vehicle. Credit history, car models, and down payments are also factors to consider when looking for the best financing option for your first car, and we’ll touch upon all those, and other factors, in this article.
Types of Car Financing Options Available For First Time Buyers
As a first-time buyer, you might not have enough capital to buy a car upfront. Luckily, there are a few options available to you to secure financing for your first car.
Car Loan
You can obtain a car loan from a variety of lenders, including banks, car dealerships, and alternative lenders. Since your car can be used as security for the loan, rates are often reasonable. Furthermore, car loans can often be used for both new and used cars.
Secured Personal Loan
If you aren’t comfortable using your car as security for the loan, you might want to consider a secured personal loan. With this kind of loan, you are able to use other assets as security instead of the car. Some examples of security, or collateral, that can be used are expensive artwork and jewellery, equity in a house, or savings and investment accounts. Rates are also often reasonable with secured personal loans, and the terms are flexible since the lender has tangible security on the loan. Furthermore, you are able to borrow as much as your collateral is worth, which can sometimes be more than the value of your car.
Unsecured Personal Loan
An unsecured personal loan is attractive because you don’t have to put up any of your assets as security in exchange for borrowing. However, you often need to have a high credit score for a lender to trust you enough to give you an unsecured personal loan. Keep in mind that interest rates are often higher with unsecured loans compared to secured personal loans and car loans. A cosigner can help you obtain an unsecured loan if your credit rating is poor.
Cosigner
A cosigner guarantees they will be legally responsible for paying back a loan if you, the borrower, are unable to pay. As a first time buyer, you may not be established enough to have a high credit rating or enough capital or assets to use as collateral. Having a cosigner, perhaps a parent or more established adult, can help improve your chance to be approved for a car loan. A cosigner can improve your chance of obtaining a more competitive interest rate as well.
Best Car Financing Providers in Canada
| Amount | Interest | Term (Months) | ||
|---|---|---|---|---|
 | $500 - $50,000 | Up to 46.96% | 12 - 84 | Learn more |
 | Varies | 8.49% + | 24 - 96 | Learn more |
 | $500 - $35,000 | 29.99% - 46.96% | 9 - 60 | Learn more |
 | $500 - $10,000 | 12.99% - 39.99% | 9 - 36 | Learn more |
 | $5,000 - $40,000 | Varies | 12 - 72 | Learn more |
 | $5,000 - $45,000 | 4.90 % - 29.95% | 36 - 72 | Learn more |
 | Varies | 11.9% + | 12 - 84 | Learn more |
 | Up to $50,000 | Varies | 12 - 84 | Learn more |
How Can You Get The Best Car Financing Deal?
With so many financing options to choose from, it can be daunting to pick the most suitable one for you. To help you decide, you might want to consider using a loan comparison site. These sites offer tools that can help you compare interest rates, pre-approve you for a loan, and provide you with quotes on various financing options.
Financing Features to Consider
APR (Annual Percentage Rate)
This represents the loan’s total cost, as it is inclusive of all costs associated with the loan, including rates and fees. For example, a loan with no interest and high fees might have a higher APR than a loan with high interest, but no fees.
Shorter Loan Term
Although a longer car loan term may seem attractive because of the lower monthly costs, you often end up paying more in the long run, since you’ll be paying more interest. Consider a shorter loan term to ensure you don’t pay unnecessary interest fees.
Promotions and Sales
Make sure you do your research on multiple lenders and dealerships and check their websites frequently for promotions and sales.
Larger Down Payment
Although some lenders offer loans that don’t require a down payment, these financing options often come with higher interest rates and higher monthly payments. Consider saving for a little bit longer to secure a bigger down payment for your loan. In the long run, this will keep your monthly payments lower.
Learn how to properly budget for a car.
Monthly Budget
Examine your bank and credit card statements with great detail to get an idea about your spending each month. By subtracting this amount from your monthly income, you’ll get an accurate range of how much you can afford to pay in monthly car payments.
What do You Need to Qualify For a Car Loan?
Once you’ve decided on your financing option, your lender will have a few requirements for you to fulfill and documents that you need to provide before being approved. Being 18 years old or older, and a Canadian citizen (or permanent resident), are often base requirements to be approved for a car loan. You will also need to have a strong debt-to-income ratio, meaning your income needs to be substantial enough to cover your personal expenses and loan payments with relative ease. Credit score and income are also important factors for your car loan qualification.
Here is some additional information that lenders often ask for:
- Name and address; to validate your name and address, you will usually need to provide a government-issued photo identification card
- Proof of income, employment
- Information about any outstanding debt
- Vehicle details, including make, model, safety rating and year
Tips For First Time Car Buyers
Purchasing your first car on your own can be a stressful step to take, here are the most important tips to keep in mind when heading to the dealership.
Negotiate
When buying your first car, make sure to try negotiating the total price. It might seem daunting at first, but you’ll never know until you try. Additionally, make sure that you are negotiating the total price rather than the cost of monthly payments. Dealers might try to sell you on a deal with lower car payments, but a higher total price overall.
Do Your Research
Make sure you research plenty of car options before making a decision. Research can help you decide if you want a used or new car, and the type of model that you’d like.
Used or New?
If you’re on a tighter budget, you might consider a used car. Before buying a used car, make sure to obtain a vehicle history report so that you’re aware of any accidents or incidents that the car has experienced. You might also consider having a mechanic inspect the vehicle.
If you have a higher budget, you can get away with avoiding that extra work by buying a new car.
Model and Features?
When deciding on your car model and features, you should first consider why you are purchasing a car. Are you a commuter? You may want a car that’s fuel-efficient or one that retains a high trade in value. Do you have kids? You may need to consider a minivan. Will you be transporting a lot of cargo? You might need a car that can carry more weight. These are all factors that can help you determine what kind of car is best for you – whether it’s a sedan or an SUV.
Once you have picked a couple of car candidates, search for online reviews of each one. Online resources such as Edmunds or Kelley Blue Book both have reviews of many different car models. There are also a variety of tools online, like Consumer Reports, that allow you to submit certain criteria, and then generate options best suited for your lifestyle.
Budget Accordingly
Before buying your first car, it’s important to have at least an idea of how much you want to spend per month, and over the course of the loan term. However, don’t just budget for the cost of monthly loan payments. You’ll need to consider the costs of maintenance and repairs, car insurance, registration fees, license plate renewal costs, and fuel.
First Time Car Buyer FAQs
Do I need a down payment when I buy my first car?
Will they check my credit when I get my first car loan?
Should I get a warranty for my first car?
Final Thoughts
Buying your first car is an exciting endeavour, but can be tricky if you don’t have established credit or capital. Loans Canada can help you research, evaluate all of your financing options, and shop around for the best financing option for your first car.
