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When you buy a new car, it loses 20% of the value the moment you drive it off the lot. Buying a used car can help you save money in monthly repayments and fee. And when you buy a preowned car, you have more room to negotiate the price.
Ben lives in Ontario and recently got a new job in another city. He decides to buy a car so he can drive to work and opts for a used vehicle to save some money. Ben visits a private dealership, where he finds a 2017 Hyundai Elantra in good condition with relatively low mileage. He finds the price reasonable at $14,500.00, so he makes a 20% down payment of $2,900.00 and heads to his local bank to get an auto loan to cover the remaining $11,600.00 + $1,885.00 HST.
Because Ben has a solid credit history, he is approved for a $13,485.00 auto loan with competitive terms. Along with the cost of his loan, Ben also pays approximately $180.00 to register his vehicle with the province of Ontario – this includes the cost of license plates, a sticker and a vehicle permit.
|Cost of used car||$14,500.00|
|Loan type||Auto loan (term loan)|
|Interest rate (APR)||4.90%|
|Loan term||5 years|
|Additional fees||4.00% origination fee ($539.40)|
|Payment||$253.86 monthly or $117.05 biweekly|
|Total loan cost||$15,231.67 with monthly payments or $15,216.50 with biweekly payments|
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
You have several options when it comes to getting a loan for a used car. These include:
Find out more about using a personal loan to finance a used car here.
Lenders typically have minimum and maximum loan amounts, and often set limits to the age and mileage of vehicles that qualify for loan approval. Your credit score will also affect your chances of getting a car loan. A score of 630 or more gives you a good chance of securing a loan. But if your score is below 630, it will be difficult to gain approval. Find out how you can improve your credit score here.
Some lenders might request a deposit. This usually happens in three situations:
In any of these cases, it may be necessary to leave a deposit for your used car, but that doesn’t mean you have to settle for the dealer’s terms. Every step of a car purchase can be negotiated, and that includes your deposit.
Securing the right finance is as important as finding the right car. Some car loan terms extend up to seven years, so it’s quite a commitment. Here’s what to look for when looking for the right financing:
The average used car loan is shorter than a loan for a new car. Loan term varies between lenders, but it’s usually between two and seven years. Longer loan terms can make your monthly repayments smaller — but you’ll pay more interest, making your loan more expensive in the long run.
Low-interest car finance deals can be tempting, but keep in mind that interest can add up over time. Low, ongoing repayments don’t automatically mean a cheaper loan.
Take a look at the following features of both the loan and the dealership finance offer to find out which one is the better deal:
Whenever you apply for a used car loan, take the time to read the terms and conditions. It’s important to be aware of all fees and charges, as well as any restrictions on the vehicle or loan.
A used car can be a reliable option when you’re looking for your next set of wheels — as long as you make sure you get the right used car financing.
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