Forge a Relationship With Your Mechanic to Make Your Life Better

A car is one of the biggest expenses in your life, so you might as well do everything you can to keep that expense as low as you can. This means you’ll want to work on developing a relationship with a mechanic who specializes in used cars like yours. Learn more about just what you have to gain by making nice with your dealership mechanic.

Loyalty Pays Off

When you come back to your mechanic time and time again for all your car repair needs, you’re likely to receive a bit of leeway here and there in regards to cost. There’s even a chance that you’ll receive a small repair for free. This is because mechanics know all too well how much competition is out there, and the fact that customers like you keep coming back means that they stay in business longer.

Remember Not to Get Defensive

If you aren’t an automotive expert, you won’t know when your car is having minor issues, but you’re likely to learn of those issues when you finally do take your used car to your dealership mechanic. Try not to get upset with your mechanic when you learn of all the many minor repairs your car might need and the potentially major cost that comes with them; your mechanic is just delivering the news. To keep this from happening, take your car in more often for a diagnostic run, even if everything seems to be working just fine.

Know That Not Every Repair Will Be Cheap

While it’s great to learn what you thought was a big repair with an equally big price tag is actually a minor repair with a minor cost, that won’t always be the case. When those major repairs strike, talk with your mechanic about what all that cost entails. Remember, good quality doesn’t always come cheap, and the relationship you have with your mechanic could save you a bit on those major repairs.

Create a relationship with your dealership with your mechanic to bring out the best in your used vehicle. While you’re at it, be sure to send some occasional business your mechanic’s way.

Questions to Ask When Applying for Bad Credit Car Loans

The same circumstances that led you into a bad credit history can also make it difficult for you to afford a new car, or even to obtain a loan for a less-than-perfect vehicle. Fortunately, there are bad credit car loans that are designed to help people in circumstances like yours. These loans can help you get into a vehicle you can afford, but only if you know what to look for. Use the following questions to help you make the most of these loans.

How much interest will you pay over the life of the loan?

You may be excited, for example, about finding a car for $5,000, but if you end up paying $35,000 in interest over several years, you’re not getting a very good deal. You’ll probably have to pay a high interest rate, but ask specifically how much that will become over the length of the loan.

Is there a prepayment penalty?

Sometimes, especially when the price of a vehicle is low and the interest rate is high, the contract will include a prepayment penalty. This means that you won’t be able to increase the amount of your payments or use a bonus to reduce your debt. It is always a good idea to get rid of a prepayment penalty, if possible.

What are the requirements for refinancing the loan?

In some cases, you’ll be able to make changes to the loan as your credit improves or once you’ve successfully proven that you can make consistent payments. Find out what those steps are, so you know how long you have to deal with the poor terms of the loan and the specific steps you have to take before you can arrange better terms.

With these questions in mind, you may be able to get valuable information that leads to better decisions regarding your new car purchase. Your poor credit doesn’t have to keep you out of a car and it shouldn’t mean that you’re saddled with a terrible loan for years to come.

Understanding Canadian Car Loans from A-Z

Written by Sean Cooper

Are you planning to purchase a vehicle? Unless you can afford to pay for it in cash, you’ll have to borrow the money. And there are a lot of factors to consider when choosing a car loan: should you finance or lease? What interest rate can you get? How long will you take to pay the loan back?

Everyone’s circumstance is different, and one car loan might be a perfect fit for your neighbour but not for you. Let’s take a look at the car loans Canada offers to see if we can simplify what might otherwise be an overwhelming landscape of info.

Car Loans – The Basics

A car loan is a personal loan in which a lender loans a borrower the funds needed to buy a car. In exchange, the borrower agrees to repay the lender the loan amount with interest, typically in monthly payments, until the loan is fully paid off. There are a few key concepts that are important to understand if you’re considering a car loan.

Principal

Principal is the total sale price of the car, and the amount you borrow. This includes any fees for the lender or dealership and any add-ons or options you may select.

Interest Rate

The interest rate is the percentage the lender charges the borrower on the money loaned. The rate given by a lender can depend on several factors, including: the lender’s prime rate; the borrower’s credit score; and the vehicle’s make and model. If you have an excellent credit score and earn a decent wage, you’ll typically qualify for the best (prime) interest rate on a car loan.

Term

The term is the period of time in which the car loan is to be repaid. Car loan lengths are typically between two and eight years. Longer car loans in Canada have the advantage of lower monthly payments, but can lead to the unfortunate situation where you have negative equity in your vehicle (you still owe money on the vehicle when it’s inoperable). For that reason, you might think twice before taking on a seven or eight-year car loan.

A general rule of thumb is to try to cap it at five years if your cash flow allows. (If you’re confident that you’ll have a steady source of income that you can budget a monthly payment from for the next five years.) If it doesn’t, consider buying a less expensive vehicle, or consider leasing.

Does It Make Sense to Lease, Finance or Buy a Car in Cash?

Why you might lease a car:

  • You prefer to drive a new vehicle: When you lease a vehicle, you’re essentially only renting it. The typical car lease lasts only two to four years. Once the lease is up, you can return the car and start the process all over again by leasing another new vehicle or you can buy out the lease from the dealership if you want to keep the vehicle.
  • Cash (flow) is king: The biggest advantage with leasing is cash flow. When you lease, your monthly payment will be lower than if you take out a car loan to purchase the same vehicle. Unlike a loan, where you borrow the full purchase price of the vehicle, with a lease you’re only borrowing the amount that the car will depreciate in value over the period of time of the lease. A vehicle that costs $600 a month with a car loan may only cost $350 a month with a lease.
  • You enjoy driving nice cars: The lower monthly car payment when you lease versus own means that you can afford a nicer make and model of car than you otherwise would be able to if you financed or bought the car.
  • You don’t drive very often: If you mostly use your vehicle for commuting short distances, leasing may make sense. You don’t have to worry about going over the distance limits on your lease and being forced to pay costly overage penalties. Most standard car leases come with a limit of 24,000 kilometres. As long as you stay within the limit, you should be fine.
  • Peace of mind: Since you’re always driving a newer vehicle, you’re less likely to incur costly car repairs since the vehicle is almost always under full warranted. Although note that if you do need car repairs, you may be required to get them done at the lease’s dealership, which may cost you more than taking your car to the neighbourhood auto mechanic.

Why you might finance (take out a loan) a car:

  • You drive long distances:When you finance (or own) a vehicle, you don’t need to worry how often you drive it. If you’re commuting long distances to work and planning to travel a lot, you won’t have to stress about facing penalties you’d incur when leasing. You’re generally better off financing instead of leasing if you plan to drive over 30,000 kilometres a year.
  • You’re in it for the long haul: Unlike a lease, once you pay off a car loan, the vehicle is yours. There are no more monthly payments to deal with. It’s an asset that can be used to make a stronger financial case, for instance, when applying for a mortgage. You can drive it into the ground or trade it in. It’s completely up to you.
  • Freedom of choice: If you’re a car enthusiast, chances are you’ll want to modify your vehicle. If you want to add a custom tailgate, you’re out of luck if you lease. Not so if you took out a car loan, in which you can customize your vehicle to your heart’s content.
  • Building your credit score: There are five factors that make up your credit score. Payment history is the most important factor, accounting for 35% of the score. By steadily paying your car loan over time, it can have an overall positive impact on your credit score.

Why you might buy a car in cash:

  • No monthly payments: If you have the cash, you might consider buying a vehicle outright. When you do, you don’t have any monthly car payments to worry about, which will reduce the mortgage amount you’ll qualify for if you’re planning to buy a home. You also won’t have to worry about going to a lender for financing.
  • Cash incentives: To entice you to pay in cash, the car dealership may offer you cash incentives (i.e. a discount on the car cost) as a sweetener.

How Does a Car Loan Work?

Applying for a Car Loan

You’ll need to complete the lender’s car loan application form, where you’ll provide your basic personal and financial information. You’ll also typically need to submit other documentation, including notices of assessments for two years, your monthly housing cost, the make and model of the vehicle you’re considering purchasing, and any monthly debt obligations you have. A lending specialist will then review your files and crunch the numbers to see if you qualify for the loan. Pre-qualification can be done to see if you can afford the car you want (this can help avoid dinging your credit score). Pre-qualification is just like applying for a car loan, but without pulling your credit report, and therefore avoiding the potential hit to your credit score.

When applying for car loans, you’ll want to limit the number of lenders you apply with, as applying with too many lenders in a short period of time can negatively impact your credit score.

Receiving a Car Loan

The process of receiving the car loan depends on whether your lender is a bank, online lender, or dealership. With a bank or online lender, a lump sum payment is typically deposited into your bank account. You can then use the funds to purchase the vehicle from the dealership. However, if you’re buying the car directly from the dealership, you won’t typically receive a deposit since you’re borrowing the money from the dealership who owns the vehicle. You’ll simply receive the vehicle and will be required to start making your car payments.

Repaying a Car Loan

Car loans have a set repayment schedule depending on the term of the car loan you choose. If you choose a shorter-term loan, your monthly payments will be higher, and if you stretch it out, your monthly payments will be lower (although you’ll pay more in interest over the life of the loan). To keep your credit in good standing, you’ll want to make your car payments on time.

The payments are typically withdrawn by way of preauthorized payment from your bank account. If you come into extra money (such as a tax refund, pay raise, inheritance or bonus at work), you can typically make extra payments above and beyond your regular/minimum car payments. This reduces the term of your car loan, thereby saving you money you would pay in interest.

Payment Terms

A car loan’s payment is usually fixed (stays the same) during the term of the loan. When you make a car payment, similar to a mortgage, a portion of it goes toward interest and a portion goes toward principal. Car loan payments are front-loaded and paid via amortization. As such, you’ll pay the most interest at the beginning of the loan.

How Interest Is Calculated

There are two types of interest calculations on car loans: simple interest and compound interest. With simple interest, interest is only charged on the original amount that you borrowed (the principal). With compound interest, interest is calculated on both the principal plus the interest accrued since the beginning of the loan.

When you sign up for a car loan, you should receive a financial disclosure, which expresses the interest rate as APR (Annual Percentage Rate). This takes into account the total cost of borrowing and includes compounding interest, fees and anything else you may be required to pay. This represents the true overall cost of the car loan.

Credit Score and Credit Report

It’s beneficial to have a high credit score when seeking out a car loan—the higher your credit score, the more likely you are to qualify for the lowest interest rate possible. So I recommend that you review your credit score and credit report before you apply for a loan.

You’ll want to request them from both the major credit reporting bureaus, Equifax and Transunion, since some lenders only report to one credit bureau. If you find that your credit score is on the low side, try to improve it by paying down your credit card balances and other outstanding debts. Keep an eye out for any inaccuracies on your credit report that negatively affect your score. If you see an error, take steps to correct it before applying for the loan.

Make and Model

Decide on the make and model of the vehicle you’d like to purchase. This will give your lender a purchase price so that they can come up with the terms of your loan.

Personal and Financial Information

Your lender will request personal information, such as your full legal name, date of birth and current address. They’ll also want to know about outstanding debts as well as rent or mortgage payments. If you’re putting money down on the vehicle, the lender may request to see proof of your down payment in the form of recent bank statements.

Driver’s License

Your lender may request that you provide photo ID in the form of a driver’s license. Having a driver’s license can help, since borrowers with a driver’s license are typically more likely to pay back car loans.

Employment History and Income

Lenders typically ask for your employment history for the last three years. To ensure you can afford the car loan, your lender will often ask for proof of income, in the form of notices of assessment for the last two years.

Banking Details

Your lender will request a void cheque and may request that you complete a preauthorized payment form to automatically withdraw the car loan payments from your bank account.

Types of Auto Loans

Banks and Credit Unions

When a Canadian bank or credit union approves an auto loan they typically deposit the loan amount directly into the borrower’s bank account. The borrower can then use the funds to pay the car dealership for the vehicle they’d like to purchase. This is often referred to as “direct lending,” since the car loan comes directly from a bank or credit union.

Dealership Financing

As the name implies, dealership financing is when the loan is administered by the dealership selling the vehicle. The biggest advantage of dealership financing is convenience: You can buy the vehicle and finance it at the same time and location. It doesn’t get any easier than that!

Just make sure you take the time to shop around, and be confident that you’re getting a car loan with a reasonable interest rate and favourable terms.

Online Lenders

Fintech (short for financial technology) has made it easier than ever to obtain a car loan. With an online lender, you can apply for a car loan from the comfort of your home. It’s a convenient approach to getting a car loan, as application forms are completed online. And it’s very easy to shop around for the best loan terms possible, which helps borrowers save more money.

Auto Loan Features You Should Pay Attention To

Before you start your search for the best car loan you can find, remember these key factors to keep an eye on:

  • Interest rate: The lower the interest rate on the loan, the less you’ll pay for the car in the long run.
  • Fixed/variable rates: Fixed-interest car loan rates in Canada remain the same for the term of the car loan, while variable rates can fluctuate with a change in the lender’s prime rate. Variable rates offered are typically lower than fixed rates, but you might nonetheless consider going with a fixed rate if your cash flow is tight or you’re risk averse.
  • Simple/compound interest: Simple interest is based on the principal amount of the car loan, while compound is based on the principal + the interest that accumulates during the compounding period.
  • Repayment schedule: If you’re looking to maximum monthly cash flow, you may go with a longer loan term, although the tradeoff is you’ll pay more interest over the life of your loan.
  • Payment frequency: Lenders often let you choose the payment frequency of car loans. Common payment frequencies include weekly, bi-weekly, semi-monthly or monthly payments. In terms of cash flow, it’s easiest if you choose a payment frequency that matches your pay schedule at work.

Can You Still Get a Car Loan After Bankruptcy?

In the age of super high debt loads, with the average Canadian carrying over $22,000 in debt, bankruptcy remains one of the more misunderstood topics in Canadian personal finance. The confusion and myths surrounding bankruptcy in Canada remain in part because bankruptcy is still relatively rare. But that may be changing, as over 70% of members of the Canadian Association of Insolvency and Restructuring Professionals expect bankruptcy filings to rise over the next five years.

Whether you are going through bankruptcy now or considering it as a future course of action, it’s important to remember that people who experience bankruptcy aren’t consigned to financial ruin for life. Instead, bankruptcy is designed to help someone in financial trouble start fresh. Starting fresh means starting your life over, and for many Canadians, that could involve a post-bankruptcy car loan.

How Long to Wait Before Applying for a Post-Bankruptcy Car Loan

While bankruptcy will stay on your credit report for six years, you don’t have to wait that long before applying for new credit. In fact, during those six years, it’s important that you rebuild your credit by applying for and faithfully paying back credit of some kind (including loans). It’s unlikely that you’ll be approved for a car loan during bankruptcy without a significant asset to secure your loan, but after bankruptcy proceedings conclude, getting approved for a car loan is possible.

Finding Potential Lenders for a Car Loan After Bankruptcy

Finding the best car loan rates after bankruptcy is a little complicated. First, traditional lenders like banks may not be interested in lending you money for a car loan, or they may only do so at exorbitant interest rates. You can apply for a car loan through in-house financing from a dealership, but again, be prepared for higher interest rates.

While many dealerships will work with you to secure financing, especially if you can demonstrate that your income will support the payments, the amount they are willing to lend you may be less. For this reason, you should expect to finance a car valued at closer to $10,000 than, say, $50,000.

An alternative to in-house financing from a car dealership is working with a lending company that specializes in customers who are recovering from bankruptcy. These companies look beyond your credit score and do a deep dive into your financial situation. They weigh your income, recent payment history, credit score, down payment, and reasons for bankruptcy, and then offer you financing based on that information.

How to Increase Your Chances of Car Loan Approval after Bankruptcy

The first step to increase your chances of getting approved for a car loan is to increase your credit score. While your bankruptcy will remain on your credit report for six years, taking steps to build your credit score after bankruptcy does not go unnoticed. Here are some concrete steps you can take:

  • Apply for a secured credit card, use it regularly, and diligently pay off the balance every month
  • Never miss a payment on your utility bills
  • Keep your credit utilization rate to less than 35% of your overall credit limit
  • Avoid applying for several new sources of credit at once, which can temporarily decrease your credit score

On top of that, you should work to save up a decent down payment for your car loan. A large down payment demonstrates to your potential lenders that you have extra space in your budget for savings and car payments.

Finally, work to increase your income as much as possible. A good income will demonstrate to lenders that you can afford your monthly payments.

Be Wary of Predatory Loan Terms

Unfortunately, applying for any type of credit after bankruptcy is more complicated, and you may be turned down by several lenders. Due to the difficulty in obtaining credit, Canadians who have been through bankruptcy are a target for predatory lenders, and you need to be on the lookout for these companies that claim to offer good interest rates to those with bad credit, but don’t follow through. When evaluating a company as a potential lender, make sure to do your research and read online reviews and complaints carefully.

If you are offered car loan financing from a company that specializes in lending to Canadians who have been through bankruptcy, make sure to read through the fine print, every last bit of it. In particular, be on the lookout for high interest rates. While someone with stellar credit may qualify for a car loan rate from 0.00% to 6.00%, Loanconnect.ca reports that anyone with bad credit should expect to pay a rate as high as 30% to 60%. That may seem high, but payday lenders routinely lend money to customers with interest rates in the triple digits. Stay far away from loans with rates like these.

Other Factors to Consider When Applying for a Car Loan After Bankruptcy

Reading the Fine Print

Once you know the interest rate you may qualify for, pay special attention to the loan terms, especially payment frequency and whether you can refinance or pay off your loan early. It’s important to evaluate whether you can afford this loan, and the payment frequency will play a big role in determining this. Double check whether the payment for this loan is monthly, not biweekly or weekly, and that you can afford it at that frequency.

Refinancing and Early Payoff

On the same note, make sure that you can refinance this loan or pay it down ahead of schedule, because in a year or two, your credit rating may have improved enough that you can qualify for a much more competitive interest rate.

Credit Reporting

Finally, make sure that the car loan is reported to at least one of Canada’s credit reporting agencies, Equifax and Transunion. Not all dealerships report their financed loans to these credit agencies, but if you are making faithful payments on your car loan every month, you absolutely want that reported to the agencies so that you can improve your credit score as much as possible.

Finally, keep in mind that applying for a car loan after bankruptcy is difficult, but that difficulty is temporary. While you may have to downgrade your expectations now to afford your monthly payments with their hefty interest charges, if you continue to make your monthly payments faithfully, eventually your credit score will improve, and you’ll be on your way to a better financial situation.

Car Loans Myths You May Believe

If you’re about to purchase a vehicle, it can feel like everyone you know has a theory about car buying. Unfortunately, many of these ideas are based on myths that keep people from getting the car they need.

We believe in being transparent and honest, so we think it’s high time to bust the most common car loan myths.

Myth: I Can’t Get a Loan with Bad Credit

Have you ever had someone tell you that you may have to lease because of your credit? Have you worried about applying for a car loan because your score is less than perfect? We are happy to tell you that car loans are available for people with bad credit.

Once upon a time, this myth was true. A few big banks used to control this market and could tightly control who could own a car. However, recent advancements have made car buying possible for many more people. Don’t let your credit score stop you.

Myth: Loans are Only for New Cars

Many people mistakenly believe that you can only finance a new car. However, we can finance both used and new cars. As a dealer, we can offer several financing options for the vehicles we sell. Don’t get sucked into this myth.

Myth: Your Own Financing is Better Than Any Dealer’s

For people with the DIY spirit, finding your funding and skipping the dealer may seem like a great deal. However, you could miss out on some great options. Even the best credit unions may not be able to match some of our deals. We encourage you to ask questions and see for yourself.

Myths: Car Loans are Expensive

This falsity is another myth that used to be true. Back when there were only a few major lenders, you could pay a lot in fees and interest. However, now that lenders compete for your business, financing can be relatively inexpensive.

Purchasing your next vehicle can be confusing, especially with so many myths around. We work hard to dispel these myths and give you the truth you need to make the right decision.