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How Does a Car Loan Work in Canada?

A car is a necessary part of any Canadian’s life, alongside a home, and both can be the most significant purchases an individual or family makes.

Whether you want to buy or lease a car, it’s essential to do your research and ensure you can afford whatever costs are involved over the long-term. You need to understand everything about car loans and how they can affect you financially when shopping for a car.

Correct Documentation For a Car Loan

When you buy something on credit, you are financing something instead of paying for it in cash. You will then pay back the creditor in monthly installments, including interests.

To apply for a car loan, you need to gather information and documents to get ready with your application.

Your Credit Report and Credit Score

You will qualify for a lower interest rate with a higher credit score, so you need to get your credit score improved ahead of time. To get this right, pay off any outstanding debts and credit card balances.

If you need to check your credit score, you can get it done for free via many credit card issuers.

Gather Information Regarding the Car You Want to Purchase

To determine your car loan price and terms, you need to give the make and model of the car you wish to buy to the lender.

Your Personal and Financial Information

The lender will want all your personal information, such as your full name, current address, birthdate, etc. The lender will require information regarding your rent or mortgage payments and any outstanding debt, and anything else regarding your financial situation. Keep a copy of your bank statements, as they might require them, too.

Bring along a copy of your driver’s license, as you can get seen as more likely to pay off your loan.

Your Income and Employment History

You may be required to prove your last three year’s employment history. To provide proof of income, a notice of assessment will be sufficient.

Proof of Banking Details

Your lender might require you to provide a void cheque and get you to complete a preauthorized payment form. Your lender will use this form to withdraw payments directly from your bank account automatically.

Who Gives Car Loans?

There are three ways to get a car loan in Canada.

  1. Financing through the dealership – You can apply for car financing through the dealership from where you’re buying the car. This is a convenient option, although it’s wise to research various interest rates.
  2. Credit unions and the banks – Your approved loan amount will get deposited directly into your bank account if you get the loan through a credit union or bank. Also known as “direct lending,” you will get to use the money paid into your account to purchase your chosen car.
  3. Online lenders – Getting a car loan online is the simplest method, as you can do it from home. Because you do everything online, you get to compare rates and find the best one for you.

Interest Rates

When applying for a car loan, you get money to pay for the car, and you will have to pay off the loan plus interest over a period. Your interest rate will depend o your credit score, so a higher score will result in a lower interest rate and vice versa.

Reputable lenders will offer fixed annual rates to prevent your interest from fluctuating every month.

Repayment Terms

Your monthly payment gets affected by the term’s length, how much you’re borrowing, and your interest rate. You get to choose the repayment term’s length to fit in line with your budget.

The standard repayment term is 36-72 months, but you can get it lowered if you select a longer repayment term. If you want to reduce the repayment term, your monthly payments will be higher.

You can use an online car loan calculator to get an idea of how much your monthly payment will be.

How Many Cars Can You Finance?

Based on your financial position, you can get more than one car financed at a time. Check your credit score and work out your budget to see if it’s an affordable option for you. If you can afford more than one car loan payment, you can consider financing an extra two or three cars simultaneously.

It might be wise to consider financing one at a time, though, as you don’t want to become financially uncomfortable in the distant future when things can get tricky.

Financing a Car With No Credit / Bad Credit

Buying a used or new car can get costly, especially with unaffordable finance terms. If you’ve been struggling financially and need a new car, there is hope. Lenders such as RightRide offer solutions to customers who have less than favourable credit scores and are denied a car loan through banks and lenders.

NightRide provides flexible and low-interest rates and has one of the largest selections of cars available to purchase nationwide.

Is it a Great Idea to Get a Car Loan?

Before you begin looking for car financing options, you need to determine if it’s affordable and fits in line with your monthly budget. Knowing how much you could afford will help you make the right choices in choosing a car.

Ideally, if you can afford all your expenses on your income and save, you can afford a car loan. Having savings will provide you with an emergency fund to cover car repairs and maintenance costs.

If you are financially comfortable making monthly car payments, then get your new car!

Come to discuss that topic in our Facebook Group!

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