Did you know that 84% of people in Canada own a car? Having your own car provides a lot of personal freedom and can make your daily life much easier.
However, for most people in Canada, this is a big financial commitment. Used cars usually cost upwards of $25,000, while a new car can cost $45,000 or more. So what happens if you do not have the budget to buy a car outright?
This is where auto loan providers can help. These providers offer loans to help you cover the cost of your car so that you do not have to save up thousands of dollars in advance. However, the terms of your loan depend a lot on the provider your choose.
This is why it is important to find a great auto loan company. Not sure where to start? Then you’re in the right place — read on to find out our top tips for finding a great auto loan provider.
How Do Auto Loans Work?
Auto loan providers can help you pay for the cost of your new car. They will loan you the amount that you need to cover the cost of the car. You then pay this loan back in monthly installments plus interest over a set period of time.
Most lenders will expect you to have saved up a deposit for your car. This is usually between 20% and 30% of the vehicle’s overall price.
The amount that you can borrow depends on:
- Your financial history
- Your income (and its stability)
- The deposit that you have saved up for your car
The majority of auto loan companies won’t provide loans that they don’t believe you can pay back. That said, people in Canada collectively owe $3.59 billion in auto loans. So you shouldn’t have too much difficulty getting approved.
Understanding Different Types of Car Loans
There are a few different types of car loans that you can get in Canada. These all let you borrow similar amounts of money but have different repayment terms.
The type of car you want to buy and your financial position will affect which loans you can get approved for and which ones will suit you best.
1. Secured Auto Loans
Secured auto loans offer the best possible interest rates, which makes them the cheapest type of auto loan in the long run.
This is because your car becomes your auto loan security. This means that, if you fail to repay your loan, your provider can repossess your car.
Generally, secured loans are only available for new vehicles that will hold their value during the repayment period.
2. Fixed-Rate Auto Loans
Fixed-rate auto loans offer fixed interest rates for the duration of your loan repayment period. Your auto loan provider will set these rates when they first approve you.
Fixed interest rates make it easier for you to budget for your loan repayments. However, if you take out a loan in a bad financial climate, you could be stuck paying high interest on your loan for a long period of time.
3. Varied-Rate Auto Loans
In contrast, varied interest rates offer a lot of flexibility. You can make monthly payments and additional payments to pay off your loan quicker.
However, your auto loan provider has the power to adjust your interest rates throughout your repayment period. This means your interest could skyrocket, which can make financial planning more difficult.
Tips For Finding a Great Auto Provider
As you can see, the auto loan provider that you choose can have a big impact on how much you pay back during your loan period.
So it is important to find a provider that suits you. With that in mind, here are our twelve top tips for finding an auto loan provider.
1. Check Your Own Credit Score
Your credit score has a huge impact on the interest rate that an auto loan provider will offer you.
This score is based on your financial history. In particular, it shows how consistently you meet your other financial commitments. For example, if you pay your rent and monthly bills on time you will have a good credit score.
Average credit scores sit between 650 and 725, so anything above this will make it easier to get approved for a loan. Around 59% of Canadians have a good or very good credit score.
However, you shouldn’t worry if your credit score is lower than 650. It is possible to get a bad credit auto loan but most lenders charge higher interest rates for these.
In fact, some auto loan providers will try to charge you more interest even when you have a good credit score. They can get away with this if you haven’t checked your credit score in advance.
Fortunately, there are plenty of websites you can use for free to check your credit score. These include Experian and Credit Safe. So make sure you do this in advance to avoid interest rates for bad credit car loans.
2. Investigate Their Interest Rates
Auto loan providers have to use their interest rates to make money back on their loans. Otherwise, they wouldn’t succeed as a business.
However, some providers will charge more interest than others. If a provider offers an interest rate that sounds too good to be true, make sure you look into this before accepting a loan from them.
Money expert websites can also tell you about the average amount of interest on car loans at the moment. So you know roughly what to expect and can avoid providers that are asking for way more than this.
3. Avoid Large Balloon Payments
As we’ve already mentioned, some providers will offer interest rates that sound too good to be true. This is usually because they are. Balloon payments are a good example of this.
This involves offering staggeringly low interest rates on your loan for the first part of your repayment period. Then, towards the end of your loan, you have to pay a much larger sum of money back to your provider (a balloon payment).
This can be tempting because it lets you offset the bulk of your loan repayment. However, you won’t end up saving money overall and could be in a difficult position if you cannot cover your larger repayments.
4. Ask About Repayment Terms
Your repayment terms don’t just involve the interest that you pay on your loan. They also dictate how long you have to repay the loan itself and any additional requirements you have to meet.
It is important to understand these fully and decide what works best for you.
For example, if you budget carefully, a short repayment term can be financially beneficial. You might have a higher interest rate for this but there will be less time for your interest to build up. So overall this could save you money.
5. Be Wary of Long-Term Repayment Periods
Speaking of repayment periods, you should think twice about accepting terms that go on for a long period of time. These can be tempting because they often come with lower interest rates.
However, a long repayment period gives you more time to accumulate interest on your loan. On top of this, your car will depreciate over time. This means that you could find yourself paying more than the value of your car by the end of your repayment period.
6. Save Up a Larger Deposit
Saving up a large deposit gives you more freedom when it comes to choosing your auto loan provider. This means that you could:
- Borrow more to buy a more expensive car
- Reduce your interest rates on a less expensive car loan
Having a large deposit will make you more attractive to auto loan providers so you will have more negotiating power. This is also a great way to lower your interest rate if you are looking for a bad credit car loan.
7. Shop Around to Find a Good Deal
There are a lot of car loan providers around Canada, so finding the right one for you can feel overwhelming.
It is a good idea to shop around and get loan quotes from a few different providers. Then you can compare these to find out who is offering the best deal.
When comparing auto loan providers you should look at:
- Your borrowing power with each provider
- The interest rates they offer
- The repayment terms they are proposing
This will help you get a complete picture of how much value you are getting for your money.
8. Make Sure You Borrow Within Your Means
Car loans are a great way of extending your financial means to buy a car that you might not be able to afford on your own. However, this doesn’t mean that you should throw your budget in the bin. You will have to repay this loan over time.
Because of this, you should make sure that you always borrow within your means. To do this, look at your current monthly income and minus your expenses from this. This will give you a figure of how much you could realistically cover in your loan repayments.
If you don’t have a lot of income left over, try adjusting your budget each month. Once you find that you are saving more, you can figure out how much you could cover in your loan repayments.
9. Read the Fine Print of Your Contract Carefully
We have already mentioned a couple of ways that auto loan providers can end up charging more than you might expect for your loan. This is why you should always read the fine print in a loan contract carefully.
If there is anything in there that you don’t understand make sure you ask about this straight away. This will protect you from getting tied into a loan contract that you can’t afford.
10. Remember That You Can Purchase Gap Insurance Elsewhere
Gap insurance can be very useful if you have bought a car using a loan.
This type of insurance essentially covers the difference between the value of your car and the value that you owe your lender. So if something happens to your car while you are repaying your loan you have financial protection.
A lot of loan providers will offer you this when you sign up for a loan. However, you can usually get it cheaper from an insurance provider, so make sure you explore your options.
11. Avoid Providers That Are Too Pushy
If you have great credit and are financially stable, most loan providers will be happy to approve you. However, it is important to remember that they aren’t just doing you a favor.
In fact, over time you are generating income for your provider. This is, after all, a business transaction.
Because of this, you may find some providers pushier than others. This is a major red flag and shows where their priorities lie.
If you feel that a provider is trying to push you into accepting a loan or terms that you aren’t comfortable with, walk away. There are plenty of other options out there.
12. Check Out Reviews of Auto Loan Providers
As we mentioned earlier, a lot of people in Canada have car loans. This means that a lot of people have tried and tested different loan providers before you.
Reviews of different providers are an invaluable resource, so make sure you check these out. These can tell you about:
- How good the interest rates are
- Whether the auto loan provider offered fair terms
- Whether people have had positive or negative experiences working with a provider
- Fine print to watch out for in your contract
- Red flag experiences that people have had with certain providers.
This can also help you spot dealers that sound too good to be true. Once you have a list of providers to compare, do a little digging into the experiences that other borrowers have had with them.
Start Comparing Auto Loan Providers Today
When it comes to choosing between auto loan providers, there is a lot you need to consider. Taking the time to do this now will ensure that you get a great deal on your auto loan. So make sure you do your research and don’t rush into a loan contract.
Are you ready to apply for your car loan? Then get approved with Cars Fast now! We’re here to help.