If you are shopping for a new or pre-owned car, your first step should be figuring out what type of financing options there are out there. Before purchasing a car it’s a good idea to figure out the different types of car loans you can get.
Is a Car Loan from the Dealer your Best Bet?
You’ll typically see an advertisement for a new car that has an attractive low payment or “APR”. The best loans offered by new and used car dealers are always targeted to a buyer with an excellent credit rating, count on a high down payment, and encourage a shorter loan term. Less than 10% of shoppers are eligible for these loans. If you have an average credit rating similar to most Canadians, you will likely be better off utilizing smart shopping tips to get a better deal from a different source.
Can I Get a Car Loan from My Bank?
Most banks offer new and used car loans to their customers. Whether you have a credit card, chequing account, investment account, or mortgage, your bank is a good option. They know your spending habits and will be able to offer a better loan rate with a payment plan that works into your monthly budget. Before you apply, it is a good idea to know how much you can afford to spend on your monthly payment with an easy car loan calculator.
How Does an Unsecured Personal Loan Work?
Maybe you just want to trade up to a newer vehicle using your existing ride to pay for most of the new car purchase and just need a loan for a few thousand. While a new or used car loan uses the new car as collateral for the loan, an unsecured personal loan may not require collateral. They are typically issued for no more than $5,000. You can get an unsecured loan from your current bank. You may pay a higher interest rate and have to pay back the loan in six months to two years. However, if you fail to make a monthly payment, the car will not be repossessed. You will incur a late fee and your interest rate may increase.
What is Different About a Used Car Loan?
If you are looking at a pre-owned vehicle, your car loan will be structured a little differently compared to a new car loan. A used car loan takes into consideration the age of the car, its mileage, your driving habits, and the reliability of the model to determine the rate and term for you. If it is a vintage ride you wish to restore, you may wish to look into a car loan from the hobby market. These loans no longer use the blue book value of the car, but real market value and future value after restoration.
No matter if you decide to accept a loan offer from the dealer, your bank, or a third party, it is always wise to check on the status of the lender with the Financial Consumer Agency of Canada to protect your money and investment.