Car loans for first-time buyers

When buying a first car there’s a lot to consider — including how to pay for your first set of wheels. Finding a car loan can be tough if it’s your first time but options like bringing on a cosigner can help you qualify. Keep reading to find out what you need to know about car loans for first-time buyers, including financing options and common pitfalls to avoid.

3 common loans for first-time car buyers

Depending on what kind of car you’re buying and your own personal financial situation, you may want to consider one of the following loans:

• A car loan. Car loans are offered by dealerships, banks and other lenders. Rates are competitive because your car is used as security for the loan. You can use these loans for both new and used vehicles.
• A secured personal loan. With a secured personal loan, you can use other assets besides a car as collateral and borrow more but still get the same competitive rates.
• Unsecured personal loan. Don’t want to risk losing your car? Consider an unsecured personal loan. Keep in mind that you’ll typically need good credit and might need to bring on a cosigner to qualify.

Compare these providers for a first car loan

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Name	Product	APR	Loan Amount	Loan Term	Requirements	Long Table Description
CarsFast Car Loans CarsFast Car Loans		4.90% - 29.90%	$500 - $75,000	12 - 96 months	Requirements: Min. income of $2,000 /month, 3+ months employed		Go to site More Info	Compare	loading Fetching your data...
Loans Canada Car Loans Loans Canada Car Loans		0% - 31.99%	$500 - $35,000	24 - 120 months	Requirements: Min. income of $1,800 /month, 3+ months employed	0% financing applies to some new models with loan terms up to 60 months. Offer ends March 31, 2023.	Go to site More Info	Compare	loading Fetching your data...
Canada Car Loans Canada Car Loans		1.49% - 31.99%	$7,500 - No max.	12 - 96 months	Requirements: Min. income of $1,900 , 3+ months employed		Go to site More Info	Compare	loading Fetching your data...
Canada Auto Finance Canada Auto Finance		4.90% - 29.95%	$500 - $45,000	3 - 96 months	Requirements: Min. income of $1,500 /month, 3+ months employed		Go to site More Info	Compare	loading Fetching your data...
Splash Auto Finance Splash Auto Finance		9.90% - 31.00%	$5,000 - $50,000	24 - 84 months	Requirements: Min. income of $2,200 /month, 3+ months employed		Go to site More Info	Compare	loading Fetching your data...
Ontario Clutch Car Loans Clutch Car Loans	Ontario	From 8.49%	$7,500 - No max.	12 - 96 months	Requirements: 3+ months employed, Max.1 bankruptcy, Ontario & Nova Scotia only		Go to site More Info	Compare	loading Fetching your data...

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What to do before applying

• Know your credit score range. Your lender might ask about your credit score when you apply for a loan. You can get an estimate based on a soft credit pull that won’t go on your credit report.
• Get your debt-to-income ratio (DTI). Lenders often look at your DTI to make sure you can afford to take on more debt. You can use our calculator to find out what your DTI is.
• Your monthly income. Your DTI doesn’t consider everything. To make sure you can budget new debt, know how much you typically bring in each month before you apply.
• Your monthly expenses. Go through your bank and credit card statements to find out how much you spend each month. Subtract this from your monthly income to get an idea of how much debt you can afford to take on.

8 tips for first-time car buyers

1. Check your credit report. You have free access to your credit report once a year. Read over it and make sure nothing has been misreported. If it has, it may be negatively affecting your credit. Correct any mistakes before you apply for a loan.
2. Apply for pre-approval. Your credit won’t be impacted if you apply for car loan pre-approval. This can determine how much you can afford before you start searching for your first car.
3. Don’t settle for dealership financing. Comparing car loans is key to getting a good deal. Preapproval is a great tool to make sure your dealer doesn’t lowball you. Prequalifying with a few lenders also lets you find the best deal out there.
4. Have a large down payment. By having cash or a car to trade in, you reduce the amount you need to borrow. This makes you less of a risk to lenders and shows you’re able to build up your finances responsibly.
5. Avoid balloon payments. You might be tempted by those low monthly repayments, but you could end refinancing that large repayment at the end if you don’t have the money saved up when it comes. Plus you’ll pay more in interest.
6. Add a cosigner. A parent or a more established adult may be willing to be a cosigner to your loan. If you prove to be trustworthy and able to meet your debt obligations, having a cosigner can significantly improve your chances of approval.
7. Build your credit score. This option takes the longest, but can have an impact on your interest rate. Consider a store card or credit card to start building your score to prove to lenders that you have what it takes to pay off a loan.
8. Read the contract. Especially if you decide to go with dealership financing. This is where lenders can hide unnecessary add-ons that might be more expensive than other types of car loans.

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What do I need to apply?

Once you’ve found a lender and loan product you’re happy with, click the Go to site button on the table above. Most lenders require that you be at least 18 years old and either a citizen or a permanent resident of Canada.

Information that is generally requested by lenders are:

• Personal details, including your name and address; usually government-issued photo ID must be presented
• Financial details, including your income, employment and outstanding debt
• Vehicle details, including make and model

Pitfalls to avoid when getting your first car loan

• Comparing interest instead of APR. Your loan’s APR (Annual Percentage Rate) is a better representation of its total cost, since it includes rates, fees and costs associated wit getting the loan. A no-interest loan with high fees might come with an APR much higher than a high-interest loan with no fees. By looking at the APR, you’ll have a much clearer picture of how much a loan will actually cost you on a yearly basis.
• Applying solo with limited credit. If you don’t have a thick credit file, you probably won’t get good deals on your first car loan unless you bring on a cosigner.
• Going for a 72-month term. Long terms might lower your monthly costs but you’ll pay more in interest and risk having a loan that’s worth more than the value of your car.
• Not making a down payment. A 20% down payment on your car can save you a lot in interest and fees.

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Bottom line

Your first car loan may not be the cheapest financial move, but it’s one that can make a difference in your life for years to come. The good news is this loan will build your credit, making future loans easier to qualify for.

Frequently asked questions

• Will I need a cosigner?

  Not necessarily, but having a cosigner with good credit will increase your chances of being approved and will likely result in a lower interest rate.

• How can I build my credit score?

  The easiest way to start building your credit score is to take out a credit card with your bank or a store card with a retailer you shop at often. Our guide on credit cards will walk you through everything you need to know.

• What is a first-time buyer program?

  Some dealerships offer first-time buyer programs that make it easier to qualify for a loan. The terms offered and eligibility criteria differ between lenders, but you may be able to borrow a loan for your first car that you might not have otherwise been able to borrow. Or you’ll at least get a rebate or discount on the price of your vehicle, assuming you do get approved for financing.