What Are The Different Car Financing Options In Canada?

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“How to finance a car?” This is a simple question that many car buyers have. A simple answer to this can be that you can pay the entire amount for your car upfront at the time of purchase. But we know that by doing so you will be burning a hole in your pocket and using all your savings at once. So what are the other ways that will help you make the payment for the car of your choice? 

You could borrow a loan from a bank where you already have an account or your car dealership, you could look for other financing options or you could borrow a personal loan. The list goes on. Lori Hil quotes, “If you don’t have the information you need to make wise choices, find someone who does.” If you need help with choosing the right auto finance in Canada to fund your car, you have landed at the right place. In the following sections, we will list all the car financing options in Canada that will help you own the car of your dreams. 

Benefits Of Car Financing

Before we get to business, let us quickly walk you through the benefits of financing your car rather than making an upfront payment of the complete amount. 

  • You will not have to drain out your savings to own a vehicle. 
  • You can decide how much each monthly payment will cost you. 
  • With a good credit score, you could qualify for low-interest rates.
  • You can get your car for zero down payment.
  • There is no collateral involved, other than the vehicle you are purchasing. 
  • With timely repayment, your credit score and history will improve. 
  • You will get to own the car when the repayment term ends which is not the case with hire purchase/leasing. 

In the following sections, we will help you identify the different types of loans that you can get for your car and based on your requirements, you can choose the options that suit you the best. 

Car Loans

If you are buying a car, borrowing a loan is a good way to finance your purchase without having to disturb any savings. Two major ways of getting a loan are either from your car dealership or your bank. Other ways include borrowing online from online lending services. Let us take a look at the different types of car financing options for you.

Dealership Financing

Many automobile dealerships offer loans that can be applied for directly by the buyer. All the formalities are managed by the dealership. There are also some attractive offers available on most dealership financing. Dealers arrange financing options from their intern finance departments, banks or credit unions, and financial institutions specializing in car loans. 

Loans From A Financial Institution

This is the most traditional way of getting a loan. You can connect with your bank where you have a bank account and based on your past relations there you can manage to get a loan easily. Bank lending rate is usually lower than the rates offered elsewhere if you meet their eligibility criteria. 

Online Loans

The world is now online and so are your financial services. You can now apply for a loan without moving an inch from where you are. Simply go online and within a few clicks, you can get the amount you need. If you wish to explore your options, you can also get preapproved online before you commit to a loan and receive the funds. The facilities are so good that you can manage your loan easily using a single app.  

Guarantor Loans

In case you are unable to qualify for a car loan or a personal loan or any type of loan which will help you finance your car, you can consider a guarantor loan. All you need is someone with a solid credit history and high credit scores to sign for you and take guarantee that you will repay the loan. If not, the guarantor must take responsibility for completing any payments remaining. 

How To Compare Auto Finance In Canada?

On what basis should you compare the different financing options? There are certain factors that you must consider before you choose a loan option. Let us take a look at the same.

  • To begin with let us consider the rates of interest. The interest rates Canada banks, dealerships and online lenders offer will majorly depend on your credit score. Make sure you have a good credit score to secure a low-interest-rate loan. 
  • Next, you need to look at the loan term. This means you need to know how long you will be borrowing the loan. Make sure the loan term is long enough according to your repayment capability. 
  • Choose a loan where you can easily manage the monthly installments without having to take out another loan. 
  • Consider all the conditions that come along with the car financing option of your choice before you sign any agreements with the bank or the dealer. 

What Is Leasing? Is It Beneficial For Your Car?

If you understand rentals, you can easily understand the system of leasing. Leasing, it can be said, is similar to a long-term rental which can go as long as 3 to 5 years. In this type of arrangement, you do not buy the car, nor do you get to own the car at the end of the term. Basically, you pay the dealer in order to use the car for a certain period. Personal contract purchase is an example of leasing. This is a good option only if you like to try new cars very regularly. Is leasing beneficial? Let us find out by comparing the pros and cons of this option for automobiles in Canada.

Pros Cons
The payments you make a lower compared to a loan. The total amount you pay ends up being higher than the cost of the car.
If you can qualify, you can lease a new car every few years. If you break the lease before the term ends, you might have to pay a large amount.
You can choose to buy the car, return it or lease a new car. You can only drive for a certain distance or else you have to pay extra.

Conclusion

As we conclude this guide on the various options for auto finance in Canada, we hope that you would have benefited from this article. If you are new to all these financial terms, this article would have introduced you to the multiple financing options and if you are very close to buying a car, this article will help you weigh your options in an informed way before you apply for a loan or any other option. 

FAQs

Comparing your car financing options before you make a final decision is extremely important. There are little details here and there that you need to make sure you do not miss out on. To help you clear any more doubts, we have created this section, where we will be answering some of the most common questions related to financing a car. 

How to compare car financing options?

You can compare the various financing options available for a new car in Canada by comparing the interest rates charged, the term for which you need to make repayments and the eligibility criteria that you will have to meet to qualify for a particular financing option.

What is the smartest way to finance a car?

The smartest way to finance a car is by carefully checking your credit scores before you apply for any financing options. Then you must compare the various offers being made by lenders, banks, credit unions and dealerships. From these, you must wisely choose an option that helps you get the best price. 

What are 3 ways to finance a car?

The top 3 ways to finance a car are:

  • Car loans from a financial institution 
  • Car loans from a dealership
  • Car loans online
Is it better to finance through a dealer or bank?

To get better interest rates and terms of the loan, you must always choose to finance through a bank. In case a dealer offers you more discounts and the overall costs are low, you can opt for this option as well. 

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