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Compare vehicle finance options

Looking to buy your dream car but need some financial help? Here are the key points to understand about car finance.

Payday loans are expensive forms of credit and shouldn’t be used to fix long-term financial issues. People should avoid payday loans if it will put their budget under strain, as late fees for payday loans can build up quickly and result in debt.

When you have your eye on a car, it’s easy to consider everything but the financing. However, knowing your options for buying, leasing or even refinancing your dream car can get you out on the road more quickly – and leave you with more money in your pocket.

Read our guide below to find out how to get the best deal to finance your new car. We cover the different types of car loans available, the costs and answers to some of the most frequently asked questions.

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Types of car finance

What kind of car do you want? Can you afford to buy a new or used car? Do you even want to buy a car – or do you just want to lease one for a few years?

There isn’t just one type of car loan out there for one kind of driver. The financing you need depends on your personal finances as well as what you’re hoping to get out of your loan. Although you’ll find unsecured car loans, most auto financing relies on securing your loan with the vehicle you intend to buy or refinance.

Most lenders offer a combination of the following types of lending:

  • New car loans. These fixed-term loans from a lender or dealership are used to cover the cost of your new car.
  • Used car loans. Similar to new car loans, these loans factor in the mileage and age on your previously-owned car when determining your interest rate and loan term.
  • Private vehicle finance. Term loans from lenders that allow you to buy a car from a private seller, rather than a dealership.
  • Lease buyouts. This financing allows you to pay for the fee at the end of your already leased car, so that you can purchase it outright. Just make sure you’ll be able to afford to pay the buy-out cost at the end of your lease.
  • Car loan refinancing. Move your existing car loan to another lender to reduce your monthly payments or pay it off more quickly.
  • ‘Buy here, finance here’ loans. This last-ditch option helps people with poor credit avoid a hard pull on their credit report by financing their car directly through a dealership – but often with high interest rates and hidden add-ons.

How much does car finance cost?

When it comes to how much you’ll pay for your car loan, it ultimately comes down to three main factors:

  • Interest rate. A percentage of your loan balance charged by your bank or lender and added to the principal amount you owe. Interest rates for car loans vary greatly, with rates as low as 0.99% to 12% or higher.
  • Fees. Fixed charges added on to the cost of your car loan that you pay back along with the rest of your loan. Your loan’s rate is its annual fees and interest rate expressed as a percentage.
  • Loan term. The amount of time your loan contract gives you to pay off your loan. A short loan term generally results in higher monthly payments but a lower total loan cost, since you will pay less in interest. If you can afford to make higher repayments each month you should, in order to save money. rate is critical in calculating how much you’ll pay for your car loan, true. But finding a loan term that isn’t too long or too short also affects your overall costs.

The longer your loan term, the more you’ll pay in interest, which ultimately means your car just got a lot more expensive.

    How to find the ‘best’ vehicle finance that works for you

    Before you compare lenders, calculate how much you can afford to pay for a down payment, monthly repayments, any fees and your loan’s overall cost. Look up the taxes and fees associated with purchasing a car in your province or territory, and add them to the cost of each car you consider.

    Banks, credit unions and online lenders often ask borrowers to choose a car before applying. Matching services and dealerships, on the other hand, usually ask you to come with an open mind. Regardless of where you apply, narrow down the makes and models of different cars in order to get an idea of the type of car you can afford.

    To get the ‘best’ car finance for you, ask yourself these nine questions:

    Click on each question to expand more information about what to look for.

    You’ll find that some of this information isn’t readily available online for loan-matching services and dealerships. In those cases, it’s worth taking a look at reviews, forums or calling a customer service line to get a ballpark answer.

    5 red flags when looking for financing

    Lenders or dealerships advertising any of these three “perks” should ring the alarm bells – or at least prompt deeper research.
    • There’s no credit check. Dealerships often don’t run a credit check for buy-here-finance-here loans, but other types of loan usually require a credit check. Direct lenders advertising no credit check could be a scam.
    • It lets you take your car home before approval. This could be the sign of a “spot delivery scam,” where a dealer calls a few days later to announce that financing fell through and you now need to renegotiate your loan at a much higher price.
    • It lies about your credit. Some dealerships con borrowers into paying higher interest by telling them their credit is worse than it actually is. Yet another reason to check your credit report, and know what that number means, before comparing lenders.
    • It offers 0% financing. You may not pay a rate on your car loan, but you typically aren’t able to negotiate your price or take advantage of rebates. Loan terms also tend to be shorter, sometimes unaffordably so. Be very careful with this option, as it’s usually offered quite frequently.
    • A high ‘balloon payment’. A balloon payment – which is linked to a lease buyout – is the sum of money which is still owed on your car when its finance deal ends. It’s really important that you avoid a situation where you aren’t able to meet this payment and therefore you end up having to sell the car to settle the bill. This could send you into a spiral of debt, especially if you rely on your car for work-related purposes.

      How do I know if I’m ready to apply?

      You’re ready to apply for car finance if you:

      • Know how much you can afford for a down payment and monthly repayments.
      • Look into the required taxes and fees in your province or territory.
      • Know your credit score.
      • Have a few vehicles in mind.
      • Have thoroughly compared lenders.
      • Are sure you meet your lender’s eligibility requirements – including car insurance.

      I’m ready to apply. What do I need to do?

      The vehicle finance application process can vary wildly depending on the type of financing you choose. Getting financing from a dealership doesn’t involve most of the steps outlined below, for example – instead, you start at the dealership.

      What documents do I need?

      Most lenders ask to see at least three documents when you apply for a car loan:

      • Your driver’s licence. Your lender might ask to see your licence or require your licence number. Either way, have it on hand.
      • Your insurance card. Some lenders require you to have specific car insurance before applying for a loan.
      • Employment verification. You might be asked to submit tax returns or recent pay stubs to prove you make enough to afford your car loan.

      I got my car loan. What happens next?

      So, you’ve finalized the deal that got you behind the driver’s seat. Now it’s time to start paying off your car loan. With many lenders, you can set up automatic payments so you don’t forget to pay. Keep track of your personal account and loan balance to make sure everything goes smoothly.

      Before signing your loan contract, find out if you can make early repayments without incurring additional fees by contacting your lender directly.

      Frequently asked questions

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