Never Financed a Car Before? Here's What You Need to Know

If you are like many Canadians, you may find it difficult to pay cash for your next vehicle. For most families, buying a car, truck, or SUV is one of their most significant expenses, often second only to paying for housing. As a result, you may find yourself needing car financing for your next vehicle purchase. While this can be a little nerve-wracking, you shouldn't panic.

Financing a car is similar to getting a loan for your home. There are certain parts to the loan that you need to understand. You will also need to know the different factors that banks and financing companies look at to determine the amount they are willing to lend, as well as the key terms of the loan.

At IDrive Canada, we have spent over 30 years helping Canadian drivers like you secure financing for new and used vehicles. As a result, we have developed expertise that helps us locate loans that are fair and have reasonable terms. This allows you to enjoy your vehicle without losing sleep over making the monthly payments on your loan.

The Key Parts of a Car Loan

Every car loan has a number of different parts that will determine how much you have to pay each month. The first key part is the principle. This is the amount you need to borrow to purchase the vehicle and includes the price of the car, plus taxes, fees, and delivery charges. You can reduce this amount if you have an old vehicle to trade in or by making a down payment.

The second part of the car loan is the interest rate. This is the amount of interest that gets charged on the principal and paid by you as part of your monthly payment. A number of factors go into determining the interest rate, which we will discuss in a moment. The key for you is to get as low an interest rate as possible, as this will keep more money in your pocket.

The final part of the car loan is the loan term. This is the length of time you have to pay back the principal and interest. In general, if you have a shorter term, the monthly payments will be higher since you don't have as long to stretch out the payments. However, longer-term loans tend to have higher interest rates since there are greater risks for the lender, and the interest accumulates over a longer period of time.

How Are Your Loan Details Decided?

We are often asked how lenders decide on the interest rate and loan amount they are willing to offer. Many drivers want to understand how these numbers were determined. However, lenders use numerous different factors when calculating whether to approve a loan, and each lender calculates things differently. That's why we work with many lenders to find the most competitive car financing possible.

The first key factor is your credit score. The better your score, the better your loan terms will be. There are two main credit rating agencies in Canada: Equifax and TransUnion. Each of these provides a number between 300 and 900. A score below 560 is considered bad credit, while a score above 660 is considered good, and one above 760 is deemed excellent. There are a number of reasons why you may have a bad credit score, such as bankruptcy, eviction, or unpaid credit card balances.

The second factor that lenders look at is your debt-to-income ratio. You may have a good credit score, but if you have a lot of loans and credit card debt, this could also get in the way of getting a good car loan. Lenders are concerned with risk, and if you have too much debt for your income, they will be worried that you won't be able to make your monthly car loan payments on time.

The third factor they consider is the age of the vehicle you are buying. In general, banks will extend more credit and offer a better interest rate if you are buying a new car. This is because new cars are more likely to last until the loan has been paid off. With that being said, if you do buy a used car, you will probably get offered better terms if it has lower mileage and is not that old.

Finally, lenders will take into consideration the amount you are looking to borrow and if you are making a down payment. If you are asking for a larger loan, the lender is taking on greater risk. Lenders like to see the borrower make some kind of down payment, whether this is in cash or by trading in an older vehicle. If you have put some of your money into the purchase, then you are less likely to default on the loan.

Each of these factors will affect how much the bank or finance company is willing to lend for your next car. This will determine the maximum amount that you can pay for a car and will have an impact on which make, model, and trim level you can choose. These factors will also help the lender determine the interest rate for the loan, which in turn will allow you to figure out your monthly payment. Knowing your interest rate will help you see if you can really afford to buy the new or used car, truck, or SUV you are considering.

We Have the Tools to Help!

At IDrive Canada, we have two online tools that help take the mystery out of financing your next vehicle purchase. The first is our online finance application. This includes an Equifax credit snapshot that shows your creditworthiness for your next loan. It also allows you to see how much credit you can receive from a lender so you can make an educated decision when buying your next vehicle.

We also have a payment calculator on our website. Simply plug in the key information on the vehicle you are looking to purchase, and this will help you see how much your monthly payment for the loan will be. Once you have this figure, you can also determine the total cost of your loan over its full term. This will allow you to budget, and you will know exactly what you will have to pay if you decide to buy the new or used model in question.

We Take the Mystery Out of Automotive Financing

Many people are confused when they look to get financing for their next car purchase. They don't fully understand the parts of the loan and the key factors that determine how much and on what terms you can borrow. At IDrive Canada, we take the mystery out of financing your next purchase. Our financing experts will work with you to get the customized solutions you need to secure a loan on the best terms possible. We are dedicated to getting you a loan that fits your budget, so you can enjoy your next vehicle worry-free. Come to IDrive Canada today and see why you shouldn't worry about car financing, even if this is your very first loan!