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Understanding Car Financing In Canada

January 11, 2019

Understanding Car Financing In Canada

When you decide to buy a car or any other type of vehicle, you have the option to pay for it using different methods. You can buy a car outright if you have enough money to pay the full purchase price, although this is rare for most Canadians. Considering the prices of new and used vehicles, financing is a considerably more viable option. Once you decide to finance a car, you can either go to a financial institution or have a loan arranged through a dealer.

Get ready to apply

Many dealerships establish their own finance and insurance department which help guide people regarding their available financing options. When you apply for a car loan, you might be asked to complete a credit application which could ask for information: your date of birth, social security number, occupation, sources of income, length of employment, debt obligations, current credit accounts, total gross monthly income, etc.

Know your credit score

Some dealerships will ask you to submit a copy of your credit report presenting your current and past credit obligations, data from public records, and your payment records. Your credit history plays a significant role when it comes to getting approval for an auto loan in Canada. Finance companies evaluate your credit application using various techniques like credit scoring. Your income, credit history, length of employment, and expenses can be used as variables to determine your score.

Important things to consider

When you apply for an auto loan, you will make payments to a lender rather than to the dealership. However, some dealerships offer in-house financing services which might allow you to get a loan with bad credit. If are ready to finance a car, here is what you need to consider before visiting a dealer:

  • Evaluate your budget and financial situation; determine how much you can afford to spend and finance for a car. It is important to consider that long-term contracts offer smaller monthly payments but require you to pay more money over time.
  • Get a copy of your credit report and make sure there are no errors or negative information because this can have a bad impact on your ability to get approved for a loan. People who pay their credit obligations on time usually get a lower rate.
  • Make sure you know the market value of your current car before negotiating the terms of a new one. You can pay down the debt if your car’s value is less than the total amount you owe.
  • Study the contract carefully and don’t hesitate to ask questions to ensure you clearly understand every term and condition mentioned in the contract.

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