Buying a car is one of the most exciting milestones in a person’s life, and in that excitment, you may forget to think about how you’ll actually pay for your new purchase. Unless you have enough money saved up to purchase outright, which is rare, chances are, you will need to secure a car loan. If you are new to the process, it may seem confusing at first glance. Good Fellow’s Auto Wholesalers is here to explain how Canadian car loans work and how to proceed once you have found your dream car.
Canadian Car Loan Basics
A car loan is simply when a bank or financer agrees to extend a line of credit to a consumer to buy a vehicle. When a car loan is approved, the consumer agrees to pay back the lender the amount of the loan, plus any interest, fees, and other costs. These payments are usually scheduled to be returned monthly, though some car loans have bi-weekly payment terms. Interest rates for Canadian car loans will be offered based on the consumer’s credit, the amount of the loan, and the amount of the down payment. The better a consumer’s credit, the more amenable the loan terms will be.
Car Loan Terms
The length of the loan period will be determined by the amount borrowed and the lender’s desired repayment schedule. These terms are generally determined according to the health of the borrower’s credit, and the overall amount of the loan. Most car loans in Canada will range from four to six years. Some can be shorter; however, the shortest loan term is two years. The longer the loan term is, the lower the monthly payments will be. The best rule to follow is to keep a car loan no less than three years, but no more than five.
Canadian Car Loan Interest Rates
The interest rate on a car loan is the amount that must be paid in addition to the actual amount borrowed. This amount is charged by the lender to offset the cost of extending a loan. Interest rates do not affect the value of the car and are purely a measure that goes to the lender as compensation. The longer the loan term, the more interest will be paid to the lender on top of the cost of the vehicle. Interest rates are mainly determined by the current market rates paired with the credit score of the borrower. The amount of the loan and the down payment also play a part, but not as much as a consumer’s credit score.
Principal Cost
The principal cost of a Canadian car loan is the total sales cost of the vehicle you plan to finance. This is the amount that is borrowed from a lender and does not include interest, taxes, or other fees. The amount borrowed is not going to be the total car value, and this is an important point to keep in mind. There is interest, add ons, and other services that may affect the final out of pocket price.
How We Can Help
Canadian car loans can be confusing, but with the help of Good Fellow’s Auto Wholesalers, they don’t have to be. If you have any questions or are interested in securing a used car loan in Toronto, we can help. Give our specialists a call at 1 (855) 581-9590 today to find out how.