Used Car Finance Guide
If you are looking at purchasing a vehicle, it might be tough to decide on some big questions. Is it a good idea to lease? If you buy, is used better than new? What’s the best way to finance a used car?
New Vs. Used
Because of the rising cost of new cars & the massive margins that the dealers charge, it might make a lot more sense to you to buy & finance a used car – getting a much more affordable price. Especially since you can get a monthly payment that meets your budgeting needs – something much easier to do with a cheaper used car. Also, it’s important to recognize that a new car depreciates much faster than a used one.
How to Finance a Used Car?
The number one factor in getting an approval for used car financing is your credit score, credit report & credit history. Of course, the higher the credit score, the easier the approval – since your past has shown lenders that you have the capability of paying. However, luckily, a low credit score does not necessarily mean the end of the world. We offer a lot of options for all types of credit, as do many lenders in order to facilitate used car finance.
A good rule of thumb for financing a used car is putting down 20% of the value of the car & trying to get an approval that hits what you think you can afford. A good basic rate might be getting a long enough term to hit around 15% of your operating income. However, keep in mind, that this might not work for everyone since all financing needs differ.
With Bad Credit
How to finance a used car with bad credit? Though it might seem like getting used car financing is tough, there are options for all types of credit. Even those with previous credit troubles can qualify for used car finance under our programs! You just need to have an open mind, put in an application, and have enough income to afford your car.
Try to use the same rules that we outlined above – but keep an open mind and remember that they might need a slightly higher down payment or payment because of previous credit troubles.
Keep in mind also, that used car finance is arguably the best way to rebuild your credit. As we mention in other articles, car loans qualify as installment types of credit. These represent to lenders and credit bureaus that you are committed to making monthly payments on a high value item. As such, because of the relative “difficulty” & trust associated with such a loan, good performance sets you up for a much easier time in the future!
Used Car Finance is also a great option since used cars are relatively cheap. This makes them a very affordable option for everyone, and a very good bang for your buck in both building your credit and getting functionality out of it.
Car Loan After Bankruptcy
How to finance a used car after bankruptcy? Bankruptcy is a tough ordeal and it can leave many lenders thinking that you shouldn’t qualify for used car finance. Luckily, there are a lot of us that disagree! We believe that you deserve a second chance, and that you just need the opportunity to rebuild your credit.
Here as well, make sure to try for financing that makes you feel comfortable, but again, keep an open mind about the down payment especially since it can vary a lot for used car finance.
We recognize that bankruptcies occur because of a variety of factors: divorce, business failure… However, now that you have the opportunity for a fresh start, you need to make sure that you keep up with your payments & demonstrate to lender that you are not as big of a risk as your history shows. And, as we just said, used car finance & installment type loans are how to accomplish just that.
New to Canada/New to Credit
Being new to Canada or just starting out your credit journey can be tough, but there are also programs set up specifically for you. Used Car Finance & Installment credit in general is the best to build your type of credit especially. It shows lenders that your first ever dalliance with them comes from a place of strength and can catapult the level of trust as soon as your next transaction.
How to get the Best Rate for used Car Finance?
If you meet any of the above categories, you are going to need to build your credit up first before getting the best rates. That is not to say that with any of these categories you won’t get great financing, it will depend on your income, down payment, the content of your history & not just you credit score. If you do have good credit, then great – any of the below options will be able to check multiple lenders for you to try and get the best option for you.
Used Car Finance Options
Traditional Used Car Financing
Borrowing the money to buy a used car can be a difficult process and it is important that you understand your options for used car finance:
There are three different ways you can get a loan:
- Direct, online used car finance
- A loan that a Used Car Dealer arranges for you and on your behalf.
- You could also arrange used car finance directly from a financial institution that you as a consumer have direct dealing with. Your own Financing Institution could consider either traditional used car finance or a line of credit
Online Used Car Finance
It is quite common for consumers to find websites for companies that specialize in financing for certain types of clients. Our website, for example, is set up for all types of credit: bad credit car loans, good credit car loans, and everything in between. If you apply, we can process your application & approve you for a certain vehicle. Once that’s done, you’re all set!
Arranging for used car finance through the dealer.
Arranging for used car finance with your car dealer is usually the easiest way in most cases. Most dealers will make loan arrangements for you with a lender. Car Dealers might be signed up with major banks, credit unions or private lenders and can make the application process very easy. You can apply for and receive a loan directly through the dealership. These car dealers have this relationship through the dealer financing centers that each lender or bank has. The banks have these Financing Centers working and dedicated only for the dealers. As a consumer you have the benefit of receiving lower interest rates compared to the option of getting the loan from your own bank. In the meantime your Car Dealer will have a competitive edge considering that all the banks will offer competitive programs through the Car Dealer in order to gain business.
Your Car Dealer can arrange the financing for you through:
- a Manufacturing Financing Department (Example: Ford has a division that could act as a lender in providing funds)
- a financial institution, such as a bank or credit union
- an independent finance company, such as one that specializes in providing used car finance
Loans or lines of credit from a financial institution
You may be able to get a loan or line of credit through your financial institution rather than getting a loan from a dealer.
If you have a strong relationship with your financial institution (for example, you have a bank account, mortgage and/or a credit card that are in good standing), you may be able to negotiate a better interest rate on a loan or line of credit than you could through a dealer. In most cases the banks would offer better rates if you have a Home Equity Line of Credit (HELOC)
The best way to understand Leasing is to consider it as a long-term rental. When you lease a car, you make regular payments for the use of the car over a set period of time, typically 3 to 5 years. In this case you do not own the car. The ownership portion of the car registration remains in the name of the Leasing Company and the plate portion of the car registration remains in your name and gives you the right to drive the car. However, lease contracts typically give you the option to buy out the car at the end of the lease term.
Leasing is more common for consumers who like to have a new car more often and don’t want to sell or trade in their previously purchased car. Leases are typically arranged through dealers. There are usually conditions and restrictions attached to a lease and it is important that you fully understand what they are before you sign the contract.
When it comes to Leasing you need to be careful as in some cases you might have a considerable Buyback amount. This amount must be paid from you in case you decide to keep the vehicle. Check the contracts very carefully.