Everything You Need To Know About Car Loans in Canada

Buying a car is an exciting experience, but it can also be a daunting task, especially when it comes to financing. With so many options available, it's hard to know where to start.

In this comprehensive guide, we'll take you through everything you need to know about car loans in Canada, from the different types of loans available to the eligibility criteria and application process. Whether you're a first-time car buyer or an experienced driver looking to upgrade your vehicle, this guide will provide you with the information you need to make an informed decision and secure the best possible car loan in Canada.

 

How to get a car loan?

Getting a car loan is not difficult, but it can be hard to get approved, depending on your current financial situation. If you buy a car from a dealership or online retailer, you can apply for financing at the same time you buy the car. But if you buy a car from a private seller, you will need to apply for a car loan through your bank. Here are the three simple steps to apply for a car loan:

Step 1: Fill out the car loan application. You will need to give the lender your personal and financial information.

Step 2: Give the lender any other required documents. This might include proof of income and expenses, other debts you owe, and the details of the car you want to buy.

Step 3: Wait for the lender to approve your application. It may take a few days or a few weeks for the lender to make a decision.

 

Is It Better to Get a Car Loan From a Bank or Dealership?

There are three ways to apply for a car loan in Canada

1. Banks: Banks like Toronto-Dominion Bank, BMO, RBC, CIBC, Desjardins and Scotiabank offer car loans, but they can be hard to work with and usually only help people with good credit. 

2. Dealerships: Dealerships offer financing options when you buy a car from them, but they may have extra fees and might not be able to help people with bad credit. 

3. Online retailers: Online retailers, like Approval Genie, let you shop, buy, pay, and finance a car all online. They partner with many lenders, including major banks, to help borrowers with different credit profiles get approved for car loans. In addition, Approval Genie's online services are user-friendly, informative and straightforward, making it easy for borrowers to find the best loan options for their needs.

 

How Does Car Loan Interest Work?

When you borrow money to buy a car, the interest rate you pay depends on the lender's prime rate, your credit score, and the car you're buying. Every time you make a payment, some of it goes toward the interest and some toward the amount you borrowed, called the principal. 

Even though your payment amount stays the same, the portion that goes toward interest and principal changes each month. At the start of the loan, you pay more interest, but as you make payments over time, the amount of interest you pay goes down.

 

How to Calculate Car Loan Payments?

If you want to figure out how much your car loan payments will be, you can use Approval Genie’s Car Loan Calculator. This tool requires you to enter your credit score, the loan amount, and how long you want to take to pay off the loan, and some more basic personal details. 

 

What is a Pre-Approved Car Loan?

A pre-approved car loan is a type of loan that you can apply for before you start shopping for a car. By filling out a short application, you can find out how much money you're likely to be approved for and what your interest rate will be. This can help you set a realistic budget and save time when you're looking at cars. The best part is that this type of credit check won't affect your credit score.

 

What You Need for a Car Loan in Canada?

To get a car loan in Canada, you need to meet certain requirements set by the lender. While specific requirements may differ slightly, most lenders will ask for the following:

• Government issued identification

• Proof of residency

• Proof of income

• Proof of car insurance

• Be of legal age in your province or territory

• Agree to have your credit score checked

 

How to Pay Off Your Car Loan?

When you get a car loan, you'll have to make regular payments to the lender. These payments are usually due every month, but it depends on the lender. To keep your credit score in good standing, you need to make your payments on time and in full. Your payment history is the most important factor that affects your credit score.

Many lenders prefer to set up automatic payments from your bank account. You can also choose to make extra payments if you want to pay off your loan faster. Making higher payments will help reduce the length of your loan and save you money on interest in the long run.

 

What Credit Score Do You Need to Buy a Car?

To get approved for a car loan, most lenders prefer a credit score of at least 650. However, each lender sets its own credit score requirement. There is no set minimum credit score needed to buy a car. Lenders may consider your credit report and score, but they also look at other factors like your income when deciding whether to approve your loan application.

Check your credit score for FREE with no impact to your credit, with our quick and easy credit tool:

 

Can You Get a Car Loan with Bad Credit?

Yes, it's possible to get approved for a car loan even if you have bad credit. If you don't want to wait until your credit score improves, there are a few things you can do to increase your chances of getting approved:

• Ask someone with good credit to cosign for you

• Offer a down payment

• Look for lenders, retailers, or dealerships that specialize in working with people who have bad credit

• Show proof of a steady income, such as pay stubs or bank statements

 

How Does a Car Loan Affect Your Credit Score?

A car loan can improve your credit score if you make payments on time and have different types of credit products. However, missing payments or only making partial payments will harm your credit score. Applying for a car loan can also lower your credit score temporarily, but the credit bureaus allow a 30-day grace period for rate shopping. This means you can apply to multiple lenders within 30 days without it affecting your credit score.

 

Can You Afford a Car Loan?

Cars cost a lot of money, but with some smart choices, even people on a budget can afford them. If you're thinking about getting a car loan, remember that you need to think beyond just the monthly payment. You should also consider other costs associated with owning a car.

• Gas

• Insurance

• Maintenance and repairs

• Admin fees & tax

• Parking fees

 

Are Car Loan Sales Promotions Legitimate?

When doing research for auto loans, you may come across deals that are so good it’s hard to know whether they’re legitimate or not. 

• 0% car financing 

• Cash back 

• Zero down payments

• Guaranteed approval

Be wary of offers that guarantee approval. If an offer sounds too good to be true, it probably is. For instance, if you see a car loan that promises "guaranteed approval with no credit check," it's best to steer clear. Lenders who make these offers may charge very high interest rates or use other tactics to take advantage of customers.

The other three promotions for car loans are valid, but the 0% financing offer is typically only offered to customers with good credit and may have some undisclosed requirements. This deal is usually not an option for used cars.

Nevertheless, there are car loan options available that require zero down payment. With no initial payment, your monthly payments may be higher, but it's an excellent way to buy a new car if you don't have savings.

Lastly, cash back car loans are a convenient way to borrow some extra money along with your car loan without having to apply for a separate loan. Cash back car loans can be helpful when you're facing financial difficulties and need extra cash without having to apply for a separate personal loan. You can use the extra money for anything you want, such as paying off high-interest debt, like credit card balances. However, if you don't have any high-interest debt or don't need the extra money, a cash back offer may not be very important to you.

 

How to Get Out of a Car Loan?

If you want to get out of a car loan, you can sell your car and use the money to pay off the loan. However, if your car is worth less than what you owe on the loan, you'll have to pay the difference. There may also be penalties for paying off the loan early, so it's important to check your loan's conditions. Paying off a car loan early may affect your credit score, so consider keeping the account open if it's one of the only accounts on your credit report or one of the oldest. You can also transfer the loan to someone else, but not all lenders allow this. Finally, you can sell your car before you've paid off the loan, but make sure to use the sale proceeds to pay off the loan, or risk consequences.

 

How to Refinance a Car Loan?

After waiting for at least 90 days, you can start refinancing your car loan. But if you owe more money than your car is worth, it might be hard to find a lender to refinance with. You can also extend the length of your car loan to make your monthly payments lower. However, if you do this, you will pay more in interest in the long run and may end up owing more money than your car is worth at the end of the loan.

 

How Can Approval Genie Help?

If you're trying to fix your bad credit, ask for advice from people who have been in your situation before. At Approval Genie, we help you find a car and a loan that fits your life and budget so that you can start rebuilding your credit quickly. Apply for pre-approval with Approval Genie today!

Contact our used car dealerships in Canada to learn more about our bad credit car loans and how we can help you. 

Let’s get you back on the road to great credit with an affordable car loan in Canada.