Are you trying to procure a car loan but you are in a muddle regarding the whole process? This blog from Carsfast will help you navigate through the process of your car-buying journey.
You may be zooming in on the car buying process where you may be stuck in comprehending the system of car loans in Canada. There may be some particulars about the working of the car buying process where you need to understand the procedure to increase your chances of getting auto loan approval. Coming to the board prepared can help you to go through the process easily and avail the luxury of obtaining the best deals on your auto loan.
There are certain steps in the car loan approval process where the knowledge about pre-qualifications, credit reports, and contract details are a must to smoothly drive your wheels home. Carsfast here explains the things you need to apprehend to erase your complications or confusion about the car loan process in Canada.
Car loans Canada
When it comes to a car loan in Canada, it refers to borrowing a required amount of money from any bank or dealership at some agreed interest rate from both parties. Once you are granted the loan amount, you are supposed to pay back the money in monthly installments. The amount you receive from the bank is the principal amount and the time for which you are supposed to pay the money back inclusive of interest is called a term.
While the process of buying a car in Canada and getting a car loan may seem easier, the main clock gets stuck in the auto loan approval process. Besides, there are certain parameters that are to be pondered or researched before giving a nod to any contract regarding your auto loan process.
Compare car loan rates in Canada
In Canada, car loan rates and terms can vary when you try to shop around in a financial market or try using online resources, like anywhere in the world. As “research is creating new knowledge’, you can also go ahead with research and evaluation which can help in phasing out some of the best deals available at a time. Things to consider during your comparison should be:
- Loan amount: For many dealerships, you come across, you can find the minimum and maximum amount for the loan that they can offer.
- Interest rate: Before going to pursue your auto loan application, it is important to look for the lowest possible interest rates around. You can also grab some offers to ensure the best rate can be fixed with your overall loan amount. The average car loan interest rate in Canada is around 5% to 6%.
- Loan term: The term for which you are supposed to pay back the loan can also vary with different dealerships, which can range between 36-96 months. Your payments can be fixed around weekly or monthly payments where the total amount of money you need to pay will get affected by this loan term. If you go for a low monthly payment, your loan term will get stretched, and vice-versa.
Check credit score
Credit reports reflect your financial credibility as a borrower depending on your credit history. Lenders will evaluate your credit report as it shows them how much risk they are taking in lending you a loan. Your credit score can play a significant role in securing a good deal during an auto loan process, as it can determine the type of car loan you are supposed to get. Getting acknowledged with your credit and checking your credit score is important before you venture into a car loan journey.
A credit score in Canada is also significant for a loan process where a score below 560 can make it difficult for you to get approved. The credit score range in Canada which can help a person in getting his loan approved is generally between 670- 850. If you are having a bad credit score, you can wait for some time and you can try to improve the same by working on your monthly payments.
Documents required for a car loan
Since documents are vital for filling out your car loan application, you need to be ready for all the related paperwork beforehand. The documents you may need include;
- Proof of income: Your proof of income is like a testament to the lenders as it can reflect on your capability to afford the vehicle. In the case of self-employed individuals, they may need bank statements of at least 6 months to establish their ability as a borrower.
- Proof of residence: You need to submit your address for verification where you need to bring with you a bill, bank statement, or any other form of an email that enlists your address.
- Information about the vehicle: It is one of the critical steps for buying a new vehicle and you should be aware of the car you are planning to purchase. You need to bring information such as VIN, purchase price, and specifications of the car along with you.
- Proof of insurance: Your insurance is like a key to a new car, which you need to purchase once you are heading off for a car loan.
Pre-qualify for the car loan
Pre-qualifying for an auto loan can give you an idea about the whole car loan process along with the estimation of the deal. During pre-qualification, you need to provide your financial information to the lenders, including your income and credit report, which will be assessed and evaluated by them.
Accordingly, you will be given an estimated sum that they can lend you for the purchase of a vehicle. Nonetheless, pre-qualification does not necessarily mean you have received a nod for the auto loan approval process, rather it helps you fix your budget.
Co-signing your car loan
In case your stake in the auto loan approval process is falling short, you can turn the tables by securing a loan with a co-signer, who can sign a car loan with you. A co-signer with a good credit score or financial income can help you achieve your feet where you both can share the financial responsibility in repaying the car loan. Besides, with a co-signer, you can also improve your credit scores as well.
Before going for a car loan, it is important to check the warranties and add-ons, as well as they, account for a larger loan amount. Besides, you are supposed to check all the paperwork before you sign the contract, where you can check the interest rate, extras, and the final price upon which you have agreed.
If you are hunting the grounds for trusted online lenders for an auto loan, Carsfast can save you a space where you can easily go ahead with an online car loan application.
What credit score is needed for a car in Canada?
Credit score is a vital requirement for an auto loan approval process, where a person will need a credit score of at least 650 to qualify for a car loan. The average credit score range in Canada is around 630-650, where if your score is higher than 660, you can quickly increase your chances of getting a car loan.
Can I get a car loan if I am a student?
When it comes to the students, they may think that their low credit score as new buyers may hinder the process of getting approved for a car loan. But if a student works on his income, has a down payment, has a co-signer, and gets pre-approved for a car loan, he can also seal the deal.
Should I pay the car loan early?
While paying your car loan early may seem an enticing idea, there are other factors like your current interest rate, monthly payment, and financial condition that need to be considered. If you have the funds, it can improve your debt ratio, and save you money, but it can also create a credit mix to drop your credit score.
Can I negotiate my rates later?
Yes, you can negotiate your interest rate with a dealer when you get a car loan. You can also increase your chances of getting the lowest interest rates by making a large down payment, as per your financial capability. This can make a lender more convinced at considering a rate that can best suit you.