Financing a Car from Start to Finish
Shopping for a Used Car
One of the most important things to keep in mind is that financing is inextricably a part of shopping for your next vehicle. A lot of people focus on looking at different makes and models and a variety of options, thinking of financing as something they’ll only worry about once they’re at a dealership. You’ll find the entire car-buying process to be a lot easier, however, if you have financing in mind as you’re looking at different used vehicles for sale.
Although some people have the resources to buy a car outright, paying the full price for it in cash is not practical for a lot of folks. Even if you have enough money to pay cash for a car, if this wipes out your savings and safety net, then you can find yourself in a bad situation when an unforeseen problem comes up down the road. You’re better off making a big down payment without completely draining your savings and then taking a loan for the remainder and making payments––even if this means paying some interest.
Just remember that you’re not going to have many financing options if you’re looking to buy a vehicle from a private seller. If you need a car loan to afford your next vehicle, then your best bet will be shopping at a dealership you can trust. A dealership will offer you a terrific selection of used cars to choose from and help you with figuring out the right financing solution. You also don’t have to worry about unknowingly buying a used car that isn’t paid off and has a lien on it, which can happen when buying from a private seller.
Getting Started with Used Car Financing
No matter how you approach it, financing your next vehicle will start with you finding a loan to help you pay for it. You can do this on your own by contacting your bank or credit union, as well as numerous other potential lenders, but going it alone can be a lot of hassle and very stressful. That’s why IDrive Canada is here to help you with this process by taking a lot of the anxiety and worry off your shoulders, assisting you throughout each step of the process. No matter what your financial situation looks like, we’ll help you find the best offer for financing your vehicle.
This brings us to an important point: not all financing is equal. Different lenders will likely make you different offers, some better than others. By approaching car financing with an open mind and with people by your side who are experienced with this process, you have the best chance of finding great terms that work to your advantage. A big part of what sort of offers and terms you receive, however, will depend on your credit history and your credit score.
Credit Score and Interest Rates
Thinking about credit scores can be scary for a lot of people, especially since so many big purchases in your life are affected by it. Ultimately, there’s nothing to be scared of––your credit score is simply a reflection of how well you handle loans and lines of credit. Lenders want to know that you’ll pay back whatever money they give you, which is usually reflected in a good credit score that shows a history of financial responsibility on your part.
Your credit score can be affected by a wide range of things, though some of the biggest factors include how much debt you currently have compared to your income, how well you’ve paid loans in the past, and your total available credit. Anything you do that affects these things will impact your credit score, for better or worse. For example, if you make a major purchase of several thousand dollars on a credit card, then your total available credit will go down, which means your credit score will also go down. Assuming you pay it off in a timely manner, then your score will go back up––but these kinds of things are often overlooked by people.
Not only does your credit score impact how many offers you’ll get for financing a vehicle, but it will also directly affect the interest rate of those loans. This is called the Annual Percentage Rate (APR) and is an expression of how much interest you will pay every year until the loan is paid off. The simplest thing to remember is that low APR means you pay less in interest, while high APR means you’re paying more. A good credit score (high number) is one of the surest ways to get a low APR for a loan, while a poor credit score (low number) means you’ll likely have a higher APR.
Making Your Payments
Whatever loan terms you end up with, once you get an offer that works for you and fits your budget, then you’ll sign the appropriate paperwork and get a loan to pay for the vehicle. At this point, the lender has a lien on the vehicle, which means they can take possession of the car in order to pay off your loan if you fail to make payments––this is generally called repossession. All you have to do to avoid this is to make the payments you agreed to when you accepted the loan and to make them on time.
If you find yourself in a bad situation where you can’t make a payment, the worst thing you can do is try to ignore it. At IDrive Canada, we will work with you if you’re having trouble making a payment, especially if you’ve made your payments on time before and this is the first time you’ve run into a problem. Simply contact us and explain the situation so that we can help––sometimes you can even make a late payment once without any kind of penalty fee. No matter what the problem is, our finance team is here to help.
The Final Payment and What Comes Next
Once you make your final payment on the loan for your vehicle, then your lender will clear the lien that they have on your car. They’re required to notify the appropriate agency in the territory or province that you’re in to let them know that the lien has been removed. You should also have them provide you with proof that your loan has been paid and that the lien has been removed––this will protect you in case there are any mix-ups and you need to be able to prove that you’ve paid the loan.
At this point, you now own your vehicle, and the lender can no longer attempt to repossess it––the car is yours. You’re free to keep driving it and enjoy it, or you can sell it or use the car as a trade-in at a dealership to get something new. It’s your car now to do whatever you want with it. We should note that you might notice your credit score go down slightly after paying off a car if it was your only low-balance credit account or if it was your only account with installment payments. Just be mindful of this if you’re planning on getting another vehicle and need to take out a loan for it.