Second, only to your house, a car is one of the biggest financial investments you’ll ever make. Once upon a time, buying a car meant spending hours at the dealership. Back then, your knowledge of pricing, APR, and availability extended no farther than what the salesperson told you. But now, with sites like Wheels.ca and Carloans.ca, those days are long gone. With the internet at your fingertips, you can buy a car without leaving your living room.
Before you do that, however, there are a few steps you need to take. Let’s go through them.
Learn the Language of Lending
To the uninitiated, it sometimes feels like dealers and bankers are speaking a different language. The documents that accompany them, often filled with legalese and financial jargon, are not much better. To stop you from getting swindled by a smooth talker, you need to make sure you’re familiar with the following Canada car loan terms:
- Down Payment: This is the amount of money you put toward the vehicle. It lowers the amount you need to borrow and can lessen the interest you pay over the lifetime of the loan.
- APR (Annual Percentage Rate): Most Canada car loans come with interest and fees. Combining these two gives you the APR.
- Term: This is the number of months you have to pay back your Canada car loan. More than half of all Canadian car loans are financed for 84 months or longer. Since it lessens the total you’ll pay for the car, we suggest opting for the shortest term you can afford.
Click here to check out current car loan rates and see if you’re getting a good deal.
Determine How Much Car You Can Afford
If you make the mistake of going to the dealership before you have financing lined up, they’ll probably start by asking what your monthly budget is. They have a few reasons for doing that, none of them altruistic. By focusing on the monthly payment, they can make you overlook things like loan length, extraneous fees, and the total financing cost. They’ll also be able to get you into a car you can’t afford by extending the term of the loan.
To avoid this trap, you need to approach your budget based on the overall price of the car, including the interest you owe and the number of payments you’ll make. This allows you to compare cars on an apples to apples basis without worrying about dealer add-ons. To figure out the monthly payment based on a car’s sticker price, check out this car loan calculator.
Get an Understanding of Your Credit Score
Financiers use your credit score to determine whether or not you should be approved for a loan. A credit score is a numerical representation of your borrowing history and missed payments. In Canada, credit scores range from 300 to 900. Most conventional lenders need something above 650 to approve you for a car loan. If you have a history of missed or delinquent payments, your credit score may be lower than that. If so, you might find yourself stuck with a subprime interest rate or rejected altogether. That’s why it’s important to find out your credit score before you start shopping for a car.
There are two ways you can find out how your credit is doing:
- Reach Out By Mail: Both Equifax Canada and TransUnion Canada offer free credit reports by mail. To order one, send two pieces of identification and some basic background information to the bureau in question. You’ll receive your credit report in about three weeks.
- Go Online: If you’re interested in this article, you’ve probably got access to the internet. This means you don’t have to rely on snail mail to get a copy of your credit report.
If you find an error in your credit report, you’re not alone. Some experts estimate that between 10 and 33 percent of credit files have inaccurate information. To get these things corrected, contact the credit bureau in question and inform them of the problem. They’ll usually send you a form and request supporting documentation.
For those of you with less than stellar credit, we suggest taking some time to build yourself up before applying for a Canadian car loan.
Get Pre-Approved Before Visiting the Lot
Imagine you’ve done all your homework and found the car of your dreams. You’re already picking out seat covers. But, you end up getting rejected at the financing office. If this happened, you’d probably feel embarrassed and disheartened. You’ll also have shaved a few points off your credit for nothing. That’s why it’s so important to secure financing before you step foot on the lot Having a pre-approval letter also forces the dealership to meet or match your current offer. This helps you walk away with the best interest rate possible.
Though you’re more than welcome to try for financing through your local bank, it’s better to cast a wider net. This ensures you get the best deal possible. And, don’t worry, you don’t have to visit every credit union and bank in the county! That’s what aggregate financers, like Car Loans Canada, are for. With one click, you can send your application to hundreds of institutions.
Most people get approved through these sites in just 24 hours.
Find A Dealer
Now that you’ve got a pre-approval letter in hand, you can finally start thinking about dealers. This is another stage where the internet comes in handy. Take a look at any potential dealer’s online reviews. Browse their inventory. See if their prices match what you’re looking for. With that done, visit the Better Business Bureau to see if they have any open lawsuits or complaints. This is doubly important for used car dealerships. They don’t have anywhere near the same amount of oversight.
If you have the time, drive around the lot at a few local dealers. This will tell you a lot about its atmosphere. Is it clean? Are the bushes and grounds well-kept? This tells you they pay attention to detail. If you see a bunch of salespeople chatting outside, keep driving. Nobody wants to feel like a cow haunch in a piranha pond.
Pick a Few Cars to Look At
Now, you can finally start looking at cars. Before you head on over to Edmunds.ca or Wheels.ca, you need to understand what you’re looking for. Take a piece of paper and list your needs on one side and your wants on the other. For example, if you only have three people in your family, you don’t really need an eight-seat SUV. Under no circumstances should you pick a car with a want unless it fits your budget.
With that done, use one of the aforementioned sites to find a car that fits your needs. Filter by price, distance, brand, and safety features. Don’t narrow your search down too far, however. Falling in love with one car gives salesman a lot of ways to jerk your chain. There are thousands of cars out there for you.
Drive Away in the Car of Your Dreams
Now that you have a better understanding of the car buying process, you’re ready to get started. Just make sure you know your credit score and have an idea of the ballpark interest rate your credit score deserves. And, don’t forget about the importance of getting pre-approved! By doing all these things, you’ll ensure you walk away from the dealership with a smile on your face.
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