For many Canadians, a car is a necessary part of everyday life. Next to a home, a car finance is often among the biggest purchases an individual or a family will make in their lifetime. If you are thinking about buying, financing, or leasing a car, it is important to do your research, make a budget and balance your needs with what you can reasonably afford over the long term.
Buying a new car or getting yourself a pre-owned car can be both exciting and exhausting. If you’re on the lookout for a car, you may be leaning towards one of the many car finance special offers that may sound too good to be true or may scare you from them. Many car buyers are hesitant to take out a loan to finance their purchase, but there are a lot of misconceptions about car finance.
Let us together look at some of the common car finance myths in Canada and dispel some of them so that you make an informed choice and hence, an informed decision.
5 Car Finance Myths –
- The longer the loan term, the better: While a longer loan term may result in lower monthly payments, it also means paying more in interest over time. While longer loan terms may lower your monthly payments, they also increase the total interest you’ll pay over the life of the loan. Shorter terms may result in higher monthly payments, but they can save you money in the long run. Remember that when you are budgeting for a car, focus on the total cost of the car, not just on your regular payments. Dealers and lenders may tell you they can lower your loan payments to fit your budget. But be aware that this usually involves extending the term of the loan, which could mean you end up paying more interest on your loan.
- Dealerships offer the best financing deals: This is not necessarily true. Dealerships may offer competitive rates, but it is always wise to shop around and compare rates from various lenders before making a decision. Dealerships may offer to finance, but it’s important to shop around for the best rates and terms before committing to a loan. You may be able to get a loan or line of credit through your financial institution rather than getting a loan from a dealer. If you have a strong relationship with your financial institution (for example, you have a bank account, mortgage, and/or credit card that are in good standing), you may be able to negotiate a better interest rate on a loan or line of credit than you could through a dealer.
- A higher credit score guarantees the best rate: While a good credit score can help you qualify for a better rate, other factors such as income, debt-to-income ratio, and the vehicle being financed can also impact the interest rate. While having good credit can help you get more favorable loan terms, it is still possible to get a no credit car loans with bad or low credit. You may need to pay a higher interest rate, but there are lenders who specialize in providing loans to people with poor credit. While having good credit can help you get a better interest rate on your loan, it’s not necessary to have perfect credit in order to qualify for a loan. There are plenty of lenders who are willing to work with borrowers who have less-than-perfect credit or will finance cars for those in casual employment, so don’t let this myth dissuade you from applying for a loan.
- You cannot negotiate the interest rate: If you are considering financing or leasing your next car, try to negotiate the interest rate. Interest rates on car loans are negotiable, especially if you have good credit and can provide proof of income. It is always worth trying to negotiate a lower rate with your lender. Get quotes from multiple dealers and lenders. You may save money by getting a lower interest rate. You may also be able to negotiate other fees such as dealer administration fees. You will need to sign an application for the dealer to provide you with approval and a quote. However, don’t sign any other documentation, such as a vehicle sales agreement, until you make your final decision.
- Refinancing always saves money: Refinancing may lower monthly payments, but it can also extend the loan term and increase the total interest paid over time. It is important to weigh the pros and cons before refinancing. Refinancing your car loan can be a smart financial move if you can secure a lower interest rate. You can refinance your car loan with a different lender, or even with the same lender if you have improved your credit score since taking out the initial loan. Refinancing at a lower interest rate will decrease your monthly car payment, but to significantly reduce your payment, you might have to extend your loan term. Going with a longer term can be a negative since you’ll most likely pay more interest over the life of the loan.
There are plenty of myths circulating about car finance, but do not let them dissuade you from financing your next car purchase. If you are considering taking out a loan, do your research and speak with a lender to find out what option is best for you, or give us a call at 1844-850-2888 for a quick review of your financial situation.
With thousands of dealerships and happy customers across Canada, we do everything possible to get you on the road in as little as 48 hours! Apply online today using our quick, secure, and free application to see what you qualify for before you start shopping.