10 Common Car Loan Myths Explained

Car loans can be a great option for people looking to purchase a new vehicle. However, there are many myths and misconceptions surrounding car loans that can prevent people from making an informed decision. 

In this blog post, we have debunked ten common car loan myths to help you make a more informed decision when it comes to car loans. These myths include whether you can get a car loan with bad credit, obtain a loan with guaranteed approval and no credit check, and get 0% financing. We also address the need for a down payment, cash-back car loans, and what happens if you get rejected for a loan. By debunking these myths, we hope to help you make the best decision for your financial situation when it comes to car loans.

 

Here are the 10 common myths and FAQs about car loans:

 

1. Can I get a car loan with bad credit?

Contrary to popular belief, having bad credit does not make it impossible to obtain a loan. In fact, many lenders specialize in providing car loans to individuals with less-than-perfect credit. This is also true for certain used car dealerships that offer financing options. Therefore, there's no need to worry if you have bad credit as there are still options available to secure a car loan.

 

2. Can you get a loan with 'guaranteed approval' and 'no credit check'?

You must have come across a car loan promotion that claims to offer "no credit check" and "guaranteed approval". It may sound like a dream come true for those struggling with a bad credit history. But let me tell you, it's not always what it seems.

Lenders who offer car loans without checking your credit score are taking a big risk. To make up for this risk, they charge insanely high fees and interest rates on such loans. These lenders target people with bad credit who are desperate to get a loan and willing to accept unfavorable terms.

But wait, it gets worse! These loans often have hidden conditions and penalties buried deep in the fine print. For example, you could be hit with a massive pre-payment fee if you try to pay off the loan early. That could leave you stuck with a high-interest car loan for a long time.

The worst-case scenario is falling prey to an outright scam. Unfortunately, there are shady lenders out there who pretend to be reputable but take advantage of your situation.

Be wary of tempting offers of 'no credit check loans with guaranteed approval', as they're usually a predatory tactic aimed at desperate clients.

 

3. Can I get 0% car financing in Canada?

A 0% car financing is a special deal that lets you borrow money for a brand-new car without paying any interest on your loan. Sounds amazing, right? But hold on, is it really possible to borrow money for free?

Well, the truth is, not everyone can qualify for this type of offer. Usually, only people with excellent credit scores can get it. Car dealers might use it as a way to attract more customers to their sales lot, but they might not really want to give up their interest earnings.

Plus, there might be some hidden catches that you need to watch out for. For example, the 0% interest rate might only apply for a short period of time, or you might be required to pay a big lump sum at the end of your loan. If you're not careful, you might end up paying more over time.

But don't worry, there are other options available to you. You could look for massive cash rebates or lower interest rates from other lenders. And if you're really set on getting 0% financing, there are some ways you could increase your chances of getting approved. So, before signing any agreement, read the fine print and weigh your options carefully.

 

Read: 0% Financing on Car: Too Good to be True?

 

4. Can I get a car loan without making a down payment?

Typically, lenders ask for a down payment to reduce the risk of losing money if you can't repay the loan. But if you have good credit or find a dealership that specializes in helping bad credit customers, you can still get a car loan with zero down.

To boost your chances of getting approved for a zero-down loan, keep your credit score in good shape and consider applying with a co-signer. You should also look for a car that fits your budget to show the lender that you can afford the loan.

Even with bad credit, you can still qualify for a zero-down car loan. Some dealerships and lenders understand that life can throw you financial curveballs and are willing to help you get on the road to better credit.

 

Read: 5 Benefits of Making a Down Payment on Your Car Loan

 

5. Can I obtain cash-back car loans?

Cash-back car loans are a type of loan where you get extra money on top of the amount you need to finance your car. This extra cash is given to you in cash, which can be a big relief if you're short on funds. The best part is that you don't need to apply for a separate personal loan to get this extra money.

Once you get the cash-back, you can spend it on whatever you need. For example, you might want to use it to pay off high-interest debt, such as credit card debt. However, if you don't have any high-interest debt or don't need the extra cash, a cash-back car loan may not be the best option for you.

 

6. Is it necessary to provide my Social Insurance Number to obtain a car loan?

In Canada, providing your social insurance number (SIN) is not always mandatory when applying for a car loan. However, lenders usually request your SIN as it helps them verify your identity, check your credit score, and track your credit history.

Providing your SIN helps the lender to assess your creditworthiness and determine the interest rate and loan terms you are eligible for. However, if you prefer not to provide your SIN, you can discuss this with the lender and see if there are other ways to verify your identity and credit history, such as providing additional documentation or using an alternative credit check process.

 

7. Does getting rejected for a loan once mean no other approvals will be granted?

It is a common misconception that being rejected for a car loan once means that you will not be approved by any other lender. However, each auto loan lender has its unique criteria for approving loan requests. So, just because you have been turned down by one lender, it does not necessarily mean that others will do the same.

Furthermore, there are numerous lenders who specialize in providing financing options for individuals with bad credit scores. Therefore, it is important to keep exploring different options until you find a lender who is willing to work with you and provide the loan you need.

 

Read: What to Do When Your Car Loan Application is Rejected?

 

8. Can applying for an auto loan have a negative impact on my credit score?

While it is true that applying for an auto loan may have a slight impact on your credit score, it is not necessarily as harmful as many people believe. Multiple credit inquiries may signal a higher risk to lenders, but credit bureaus usually count loan applications made within a certain timeframe as a single inquiry.

If you apply for an auto loan alongside a mortgage and credit card application, this would have a more significant impact on your credit score. However, a slight dip in your credit score from an auto loan application is not necessarily bad news for your credit. On the contrary, if you make your auto loan payments on time, your credit score may improve over time.

 

Read: How to Improve Your Credit Score

 

9. Can I refinance my auto loan to obtain a better interest rate even if I have been paying a high-interest rate throughout the loan term?

You do not have to be stuck with a bad interest rate for the entire duration of your auto loan. You have the option to refinance your loan if your credit score improves or if interest rates drop.

To refinance your auto loan, you will need to follow these steps:

• Check your credit score: Before applying to refinance, you must check your credit score to know where you stand. A higher credit score increases the chances of getting a better interest rate.

• Look for lenders: Research different lenders and compare their rates and terms to find the best option for you. Consider traditional banks, credit unions, and online lenders.

• Apply for a loan: Once you have chosen a lender, submit a loan application. The lender will typically run a credit check and evaluate your financial situation to determine if you are eligible for a new loan.

• Pay off your existing loan: If approved, use the new loan to pay off your existing auto loan in full.

• Start making payments: Start making payments on your new loan, which should have a lower interest rate and better terms.

It is important to note that there may be fees associated with refinancing your auto loan, such as application fees or prepayment penalties on your existing loan. Be sure to factor these into your calculations when deciding if refinancing is the right choice for you.

 

10. Is it more challenging to obtain a loan for used cars compared to new cars?

Although interest rates may differ between new and used auto loans, it is not necessarily harder to get a loan for a used car. While it can be challenging to assess the value of an older model vehicle compared to a newer one, most dealerships and financial institutions have the necessary resources to determine the value of a used car. Therefore, obtaining a loan for a used car should not be considered more difficult than obtaining a loan for a new car.

We hope this information helps you in making informed decisions about getting a car loan. Remember to read the fine print, weigh your options carefully, and choose the best car loan that fits your budget and needs.