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Car Financing: Everything You Need To Know

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Does the arrival of spring make you want to buy a new vehicle? The process of buying a car is rarely done without financing. Do you find the field of car loans complex? To help you understand the basics of financing at a car dealership and get your bearings, here’s some information. Already ready for a purchase, apply now!

Credit rating: the basis of your loan
The first step is to validate your credit rating. This is the basis for all loans. The higher your “score”, the easier it will be to get a loan for your future car. What is it based on? If you are a good payer (e.g., cell phone payments, credit card payments, etc.), your score will remain at a good level. As a general rule, if you have access to credit and your payments have been made on time, you will find it fairly easy to obtain the financing you need for your purchase.

  1. I have never obtained credit
    If you have never applied for financing, there are several ways to access credit, the two most common being

Option 1: Use a co-applicant (endorser)

The dealer will check the credit rating of your co-applicant. To endorse you, he or she will need to:

Have a good credit history ;
commit to guarantee the loan in case of default;
In addition, you should know that the endorsed loan will appear on your credit report as well as theirs.

Option 2: Join the First Time Buyer Program (when available)

This program allows you to obtain financing, provided you meet certain criteria (which vary from one manufacturer to another).

For example, the applicant may have to :

Provide proof of employment for at least 3 months and proof of income;
deposit an amount of cash;
respect a maximum amount to borrow for a first loan.

Did you know that? Applying for credit several times in a short period of time can hurt your credit rating. For example, applying for a car loan, furniture, a house, credit cards in too many applications in a short period of time can make future creditors more cautious.

  1. I’ve had trouble with my credit rating in the past
    Have you borrowed in the past, but were unable to meet your payment obligations? It is still possible for you to obtain a loan through your dealer’s second and third chance credit. Of course, a variety of different criteria must be met, depending on the financial institution. For example, obtaining the loan could be conditional on the signature of a co-applicant or a considerable down payment to demonstrate your commitment. Did you know that? A second or third chance credit loan can help you gradually rebuild your credit rating. Financing a vehicle, considered a long-term loan, will show creditors your good will to respect your commitments. However, you must be rigorous and maintain your payments until the end of the loan!
  2. Interest rates: what are the differences?
    There are 2 types of rates, usually associated respectively with the purchase of a new car and a used car.

Preferred rates

Usually reserved for new vehicles, most manufacturers’ rates are between 0% and 3.99%. The interest rate offered at the time of your purchase will be set by the manufacturer depending on the model of vehicle chosen and the term. It will be approximately the same across Canada.

Standard rates

Usually reserved for used vehicles, they vary between 3.69% and 9.99%.

Three main criteria usually determine the standard rates, which can be fixed or variable depending on the financial institution:

The year of the vehicle: from a certain year, fixed by the financial institution, the rate could be increased.
The total amount to be financed: for example, certain interest rates are only available for amounts financed of $7,500 or more.
The term: sometimes a rate increase may be necessary if the term is longer than a certain number of months.

Obtaining the loan at the dealership
Financing is always available at the dealership. It allows you to :

be accompanied in case of problems with the loan;
centralize the entire purchasing process in one place;
add loan insurance to your financing or lease that protects you in the event of death, accident, illness or critical illness.
Did you know that? When it comes to financing, it’s the finance managers of the dealerships you’ll meet. They are professionals supervised by the Autorité des marchés financiers (AMF) who are subject to several rules and practices that are frequently verified.

  1. How are repayment terms and payments set?
    To establish a term that suits you, you will have to rely on your personal budget and the management of your finances. If your credit rating is good, it will be up to you to set the amount you can pay per year and determine the payment terms. Choosing a payment frequency, weekly, biweekly or monthly, will not make a big difference on the interest paid in the end.

You can then think about the term: that is, how many months you would like to pay off your loan. Sometimes you may want to pay off your payment over a longer period of time to get the vehicle model you want with the monthly payment you originally set. Consider also the possibility of giving a cash amount, or leaving your vehicle in exchange, to adapt your monthly payment to your initial budget. In the case where the dealer takes back your vehicle in exchange, this allows for tax savings. An advisor on site will be able to offer you several options in order to obtain the monthly payment that suits your budget.

Did you know that ? Not all financing terms (weekly, bi-weekly, semi-monthly and monthly) are offered at all financial institutions. It is therefore necessary to make arrangements in advance and to validate the options offered at the dealership in question.

  1. What happens if I want to sell my vehicle before it is fully paid off?
    If you wish to sell your vehicle, there are several options available to you, the two most common of which are

Option 1: Leave the vehicle in trade-in at the dealership when you purchase or lease a new vehicle.

If there is still a lien (i.e. there is still an active balance on the loan) on the trade-in vehicle, the dealer will send a check directly to the original financial institution.

Did you know that? Although the dealer often gives you less than market value since your vehicle is dedicated to resale, you may save taxes on your purchase. For example, if your new vehicle costs $40,000 and the dealer gives you $10,000 for your old vehicle, you will only pay sales tax on $30,000. Plus, it’s a good option if you don’t want to deal with the headache of selling to a private party!
Option 2: Selling to a private individual

When selling to a private individual, you must ensure that you have repaid your loan in full. There are several rules governing the sale to a private individual, particularly with regard to the QST. Ask the SAAQ in advance to avoid unpleasant surprises.

Did you know that? A buyer could (and should) ask you for proof that the vehicle is duty free, i.e. that the debt is fully paid at the time of purchase. He may ask you for an official document from the Register of Personal and Movable Real Rights (RPMRR). You will have to pay $9 and enter your serial number to obtain it.

What you need to remember when buying a vehicle from a dealer
Buying a vehicle at a dealership means talking to an advisor who can guide you. Do not hesitate to clearly express your needs and your budget from the start. By having this basic information, they will be better equipped to help you buy the vehicle that meets your needs and budget. It’s their job to help you feel good about your purchase! Ready to get financing for the vehicle you want? Apply today!

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