Your Questions Answered: Auto Loan FAQs

Are you excited at the prospect of buying a car, truck, or SUV? Unfortunately, for many people, the excitement that comes with purchasing a vehicle is overshadowed by the finance process. That's likely why you're searching for "car loans Edmonton," to get a better idea of what to expect when you find the perfect vehicle for your driving and budget needs.

At IDrive Canada, we believe that knowledge is power. The more you know, the easier it is to get excited about buying a vehicle. Why? Because there is less chance for surprises, like discovering your credit score is less than stellar or that you need certain documents to finalize the process. To eliminate any surprises, we're here to answer your car loan questions and help you get excited about your next vehicle!

What Does It Mean to Finance a Car?

You found the perfect vehicle, a used SUV that meets all your needs and is located at a dealer in Edmonton. However, even when buying used, most people don't have enough money sitting around to pay cash. Even if you do, you might not be willing to drain your savings for such a big purchase. By financing a vehicle, you're borrowing money from a lender to make the purchase. The term of the loan determines how long you have to repay the loan with interest, which is the percentage the lender charges to give you the used car loan. For example, you may take out a five-year loan with a 5% interest rate.

What Does My Credit Score Mean? Why Does It Matter?

Your credit score is a three-digit number that reflects your creditworthiness to a lender. The higher your score, the better, as it signifies you can responsibly handle your debt. In Canada, credit scores range between 300 and 900, with each lender able to set specific standards on what they deem acceptable. Generally speaking, scores between 300 and 559 are poor, 560 to 669 are fair, 660 to 724 are good, 725 to 759 are very good, and 760 to 900 are excellent.

Equifax and TransUnion are the two major credit bureaus that calculate your credit score. The bureaus gather data on your payment history, credit utilization, credit history, mix of credit, and credit inquiries to evaluate your score. Your payment history accounts for 35% of your score, and how much credit you use accounts for 30%, which means making your payments on time and not maxing out your credit cards play a vital role in your credit health.

Lenders look at your credit score to determine the risk of approving the loan. For example, if a relative asks you for money, but you know they will only repay you in small increments and never satisfy the loan, which makes you hesitant. On the other hand, you have no problems loaning them the money if they have a strong history of repaying their loans on time. The same is true with lenders; the higher your score, the less risk involved.

Does a Low Credit Score Limit My Chances of Securing a Loan?

Just because you have a low credit score does not mean you can't get approved for a car loan. At i-Drive Canada, we work with Edmonton drivers who have all types of credit or even no credit history at all, making it easy to get approved. In doing this, we help customers financially reestablish themselves and get the vehicle they need.

What Does a Lender Consider?

Your credit score plays a significant factor in getting approved for a loan, but lenders also look at a few other things. First, they look at the vehicle itself and consider its price, mileage, and age to determine its value. Specifically, they're looking to evaluate the risk of the loan by deciding if they can recoup the investment should you default or fail to pay. Second, a lender will look at how much you're willing to put down, which reduces the loan amount. Finally, the lender looks at your application, taking your employment and income into account to determine your financial stability.

How Are Interest Rates Determined?

Interest rates vary with each individual and are primarily based on the market and your credit score. For example, the higher your credit score, the lower the interest rate because there is a minimal risk of default. However, what is considered "low" varies based on market trends among financial institutions. You may also see your interest rate affected by your down payment, with many lenders rewarding a larger down payment with a lower rate since it means reducing the total amount borrowed.

How Is My Monthly Payment Determined?

When you shop with IDrive Canada, we start by asking you the type of vehicle you're looking for, your monthly income, and your ideal monthly payment. These questions allow us to tailor the process to your needs, showing you the inventory that best fits your budget and eliminating the opportunity to overspend or purchase a vehicle beyond your price range. In doing this, your final monthly payment is determined by the loan amount, the length or term, and the interest rate.

Can an Auto Loan Help Build My Credit?

The major credit bureaus look for a healthy mix of revolving credit (credit cards) and installment credit (mortgages, auto loans, and student loans). An automotive loan diversifies your credit mix and can help you establish a strong credit history without the potential of maxing out a credit card and running the risk of overutilizing your available credit. By making your payments on time and in full, a car loan can positively impact your score when the lender reports your payments to the credit bureaus. The opposite is also true, which means failure to satisfy your loan can hurt your credit score.

What Documents Will I Need?

Just as each lender sets their credit score requirements, they also require different documents for the loan process. When working with IDrive Canada, you'll need to provide your contact information, driver's license number, social insurance number, date of birth, financial data, and employment history. If you have a co-applicant or co-signer, you'll need to provide the same information for them.

To make the process easier and more efficient, we encourage you to gather a few items before starting the application. For example, you'll want your government-issued ID or driver's license on hand. You'll also need proof of residency, proof of income, and valid car insurance.

Why Invest With IDrive Canada?

You have several options when it's time to secure a car loan in Edmonton. You can turn to your bank, work with the dealership's in-house financing department, or work with a premier automotive lender like IDrive Canada. So, what's the difference?

The bank is solely interested in the numbers and the risk associated with the loan, which is why they require high credit scores. As a result, banks are limited to what they will negotiate regarding the loan terms or the interest rate. They're also known for charging additional fees, increasing the loan amount, and costing you more in the long run.

Dealerships are focused on making the sale and earning a commission. Car sales fuel their business, so they use sales gimmicks like 0% interest specials and high-pressure sales tactics to entice you to buy. While they may not require a high credit score, their specials are often restricted to new vehicles, follow strict terms, and require significant down payments. It's all in the fine print.

Investing with IDrive Canada means putting your financial future in good hands. Rather than focusing on the numbers or the sale, we focus on you and your financial and automotive needs. Our goal is to help you rebuild or establish your credit and get behind the wheel of a vehicle that serves you for many years ahead. Contact us today to learn more.