How to Finance a Car

Car is a necessary part of our day-to-day life. If you are going somewhere or returning from your work, a car can make your life easier. It can also save your time and can remove your hustle. It can also be a good way of earning some money. Purchasing a car is often a dream in every person’s life. A car in front of a house is the biggest dream in every person’s life. If you are also dreaming of seeing a car in front of your house, this article is for you.    

What is Financing a Car

You may not have enough cash in your hand to buy your dream car for yourself or to buy a car so that you can earn money. If not then here comes the car financing services for you. Car financing is very common in Canada. Financing a car is getting the money from somewhere to buy a car. In other words, taking financial help to buy a car in return for some interest or fees. It’s a very common way of financing to purchase a car.    

How to Finance a Car

Financing a car seems very complicated for those who are purchasing their car for the first time. Purchasing a car is one of the highest amounts of dollar expenditure for many people. Understanding how to finance a car is not a very big deal. Buying a car with your own money is not always a good decision. You can finance a car in Canada in many ways. The most common ways of financing a car are:  

Car Loan

A car loan is a contract between you and a lender on the basis of some terms and conditions. You will get your required money and the lender will get an interest. Taking a loan to buy a car is a very common and traditional way of financing a car. A car loan is if you are willing to buy a car, you can get a loan. If you give a good amount of down payment (a down payment is giving some amount of the money while purchasing and giving the rest of money on a monthly basis) you are likely to get a better deal. 

Advantages of Financing a Car

• Don’t need to spend all your savings
• You can pay a small amount monthly
• You can improve your credit score by paying timely
• You will own the car at the end of the installment period

Disadvantages of Financing a Car

• Sometimes you have to pay a higher interest rate if your credit score is bad
• Risk of losing the car if you fail to repay the loan.

There Are Few Different Ways of Getting a Loan. Those are:

Financing Arranged by Dealer

When you want to finance through a dealership, you choose your car and the dealer arranges finance for you. A dealer can arrange financing for you with the help of the financing division of the manufacturer, a financial institution, such as a bank or credit union, or an independent finance company, the one that specializes in providing car financing​. This process also needs approval for getting finance. Dealers can help you to reduce your legwork. But for this, they might offer you a higher interest rate than what you are actually qualified for.  

Financing with a Home Equity Loan

If you own a house in Canada, you can take a loan on the equity of your house. Home Equity Line of Credit often has a lower interest rate compared to a car or personal loan. Your revolving line of credit will be secured by your home’s equity. You can borrow the same amount of money equal to your house’s current market price and fund it for various purposes like financing a car. 

However, there are some risk factors as well. If you fail to repay the loan amount, the lender has the right to sell your property to recover the loan amount.  

Financing Directly from a Financial Institution​

You can get a loan or line of credit from your financial institution rather than getting a loan from a dealer. If you have a good financial relationship with a financial institution like you have a bank account, mortgage property, or having a credit card that is in good regard, you are able to get a loan. 

You can also be able to negotiate a better interest rate on a loan or credit line than you could get if you took the loan through a dealer. Dealers usually view all customers in the same light but if you went to a bank with a good credit score, you will definitely get a good deal. If you are carrying a bad credit score then there is a high chance that your application might get declined by the bank. 

Bad Credit Loan

For those who have a very poor credit score, this load is specially designed for them. Bad credit loans are offered to those who have bad credit records in the past like bankruptcy or failure to pay the loan. They are high-risk borrowers, so the terms and conditions of this financing option are pretty strict. 

Usually, bad credit car loans come up with high-interest rates as the lender has to take the high risk. But do not get upset, as you will pay in the long run your credit score will recover.

Bad credit loans often come up with shorter repayment periods. So, the number of monthly payments will be higher. Most often lenders give money ensuring loan security. That means, if you fail to repay the loan, the lender can sell your car to recover or minimize their loss. 

So, before taking this loan read the terms and conditions very carefully because different lenders have different criteria. Lastly, make sure that it fits in your budget and you will be able to repay the loan. 

Second Chance Car Loan

Second chance auto loans, also called subprime car loans, are similar to bad credit loans. This loan is offered to those individuals who had bad credit scores in the past like bankruptcy.

Though second chance auto loans offer a higher interest rate compared to the traditional car loan interest rate. However, this type of loan helps individuals to recover their credit score by making timely payments.

Before taking this kind of loan, online resources can be helpful in finding different loan offers and lenders who offer second-chance auto loans.     

Online Car Financing

Getting online car financing is the easiest way of purchasing a car for all Canadians. Online financing companies will help you with pre-approved loans. Online car financing will give you a better idea of which car you can afford and will check the credit requirements so that your credit score will remain safe. Besides those you can also select your preferred car and get to know whether it matches your requirements or not.     

Car Leases

Leasing is renting a car for a long period of time. In car leasing, you can make payments on a regular basis for the use of a car over a period of time, typically 3 to 5 years. You will not be the owner of the car; you just take the car for your own purpose for a period of time. However, you can have the option to buy out the car at the end of the lease contract. 

Leasing is more common for those consumers who want to have a new car more often but don’t want to take the hustle of selling or trading their previously purchased car. 

Leases are commonly arranged with the help of dealers. There are some terms and conditions in the lease agreement and it is important for you to properly understand what is written over there and what they are offering before you sign the contract paper. 

Benefits of Leasing a Car

• Lower amount of payment than a loan with the same terms and conditions.
• Don’t need to have a huge amount of money to get the car facilities.
• You can make an easier budget for a lease in the short term.
• You can get a new car every few years if you are able to take a lease.
• You do not have to bother about selling the car when it becomes old.
• Sometimes leases can offer your car repair warranties. So that you don’t have to spend money on major repairs which is costly.
• You can upgrade to new car models without any hustle.

Negative Sides of Leasing a Car

• In the long term, you have to pay more money overall than if you choose to buy a car. 
• You do not own the car at the end of the lease period you have to return it.
• If you want to end the agreement before time, it can be very costly.

What else are Lenders Are Looking for?

Anyone Canadian will be eligible for a car loan if he/she meets certain criteria. Those are: 

• A Canadian resident
• Having a Canadian driving license
• An individual with the age of majority according to the country’s law
• Proof of income
• Having a good credit score

However, different loans suit different people considering their financial conditions. First of all, identify your current financial conditions, then choose a car financing plan that suits you the best and will be beneficial for you. Research multiple times to find the best offer, interest rates, and lenders that match your requirements. If you have a financial professional friend, get help from him to identify the best car financing option for you. Lastly, take a secure and the best financing option to finance your car.