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.

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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.

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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.

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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!

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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)

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Car Leases

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.

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Bad Credit Car Loans

It is quite common for consumers to find themselves in Financial Hardship and, at that point, it can be very hard to make payments on previous debts. If this has happened to you, not to worry, there are still plenty of options for you to get the vehicle you want & deserve – like bad credit car loans. We are here to help! There are a lot of options available to those who have had trouble in the past – whether that be bankruptcy, divorce, newcomer, or anything else! Though it is of course better to avoid problems in the first place, remember that as long as you show a good attitude and have acceptable income, there is still a good chance of an approval – at the end of the day, giving it a shot costs nothing!

What is crucial is to start rebuilding your credit. Luckily, bad credit car loans are arguably the best way to do that, since as big-ticket items that require regular payments, they show all lenders that you can be responsible, but, as a counter, it is crucial to make your payments on time, since screwing up your rebuilding credit option could be a bad look for any future financing. At the end of the day, if you need a ca & are ready for the responsibility, make sure to get a bad credit car loan from Priority Car Financing today!

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All of this is not to say that messing up on a previous or current loan is without consequences. Failure to make the payment on time may force the finance company to repossess your vehicle in order to recover the money they are owed. Financing companies can use Tow Companies or Bailiffs or their own agents to repossess the car. Having the vehicle towed, however, is just the start of your financial problems. In most cases, the vehicle will be worth less than the loan balance, which means you will likely have a residual debt (called a deficiency or shortfall) after repossession. This is a very important part to understand as a consumer.

Bad Credit Car Loan vs. Bad Credit Car Lease

Please be aware that having a Car Loan or a Car Lease makes no difference in terms of repossessing the vehicle. 

In the case of a leased car, the dealership or auto seller retains ownership of the vehicle. You signed a contract or lease agreement with terms allowing the lessor to seize the vehicle if you fail to keep up with your monthly lease payments. If you purchased your vehicle, you own the vehicle, but the car lender will register a lien against your car as collateral to ensure payment. If you default on your payments, they have the right to repossess the car. Keep in mind that the Lien registered in the Consumer’s name and on the vehicle gives the financing company the legal right to repossess the car.

You will receive notice that you are behind on your payments, but the lender does not have to notify you when they send someone to pick up your car. If the lender takes action, this is known as an involuntary repossession. If you know you can’t afford your vehicle any longer, you can also surrender your vehicle willingly, something known as voluntary repossession or voluntary surrender.

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Misconceptions after Repossession

One of the biggest confusions for consumers is their assumption that when the car has been repossessed, then they no longer need to make payments. Unfortunately, the repossession process does not cancel your obligation to make payments under the loan or lease agreement. Once the financing company seizes the vehicle, the lender can sell it or put it up for sale at auction. The proceeds of the sale will be subtracted from any balance that you owe. Repossession costs, interest charges, and late payment fees will be added.  This deficiency in realizations is now an unsecured debt which you  still owe to your auto lender.

Credit & Bad Credit Car Loans

One of the big disadvantages for the consumer is the fact that the consumer’s credit will be negatively impacted. The lender will also report the late payments on your credit report, which will impact your credit score as well. This note will remain as part of your credit history for up to seven years.

While the process of Repossession is very unpleasant, we strongly recommend making payment arrangements with your lender.  Any payment plan will require you to catch up on all of your payment arrears and repay any repossession fees and recovery costs they may have incurred. Arrangement with the Lender will only benefit your current situation since a settlement offer could clear up your debts.

This process & the problems that your lack of payment causes to your credit report & score is what creates the environment for a bad credit car loan. The fact that you have caused these problems, or lost money for previous companies in the past, whether through car loans or other debts (credit cards, line of credit…), means that a new lender needs more compensation for the higher risk – this is why it is a bad credit car loan!

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Filing bankruptcy will not stop a repossession because your auto lender is a secured lender. Secured creditors are not prohibited by the automatic stay in bankruptcy or consumer proposal from enforcing their security rights.

If you decide to walk away from your car loan, or if your lender has already repossessed your vehicle, it is possible to file bankruptcy or a proposal to eliminate the unsecured deficiency.

Car repossession does not have to lead to continued financial hardship. While we don’t recommend people pursue the last resort of bankruptcy just to deal with a car loan deficiency, if you have other debts, filing a bankruptcy or proposal to deal with all your debt problems can make sense.

Keep in mind, this is concerning to a lender since they will assume that others have lost money with you.

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