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What to Expect With Poor Credit Auto Loans

When you are looking to buy a car, but you have a history of bad credit, it can seem like your dream is over before it has had a chance to begin. Luckily, there are plenty of options available out there for those who are looking to buy a car but do not have the credit that they wish. One way to do this is with poor credit auto loans. Taking out this type of loan can help you get behind the wheel of the car that you wish in practically no time at all. There are a few things to remember when you are considering this type of financing.

Taking Out the Loan

The first thing that you need to keep in mind is the amount of the loan itself. The size of the loan will be determined by several factors. The price of the car itself can make a huge difference, so if you are looking at a car that is not within your reasonable budget you can expect higher payments over the course of time. The duration of the financing plan will also change what you can expect in payments. The shorter the time frame, the higher the payments. Sit down and create a reasonable financial plan in order to make the best decisions for your poor credit auto loans.

Making the Payments

As with any loans, making consistent payments in a timely fashion is a wise idea. How you make the payments is entirely up to you. When you make larger payments each month, you will be done paying off the car in a much quicker fashion. However, if you can only afford a specific amount each month, it is better to stick with whatever payment you can afford that meets the monthly requirement so you can get your credit in better shape. No matter how you choose to pay back the loan, it is important to stay on top of your game throughout the process so that you do not miss payments or harm your credit in any way.

3 Car Loan Myths

If you have your eye on a new or used car, you may have to consider financing options. The problem that a lot of people face is that they don’t have optimal credit and may not think that they qualify. While many lenders offer bad credit car loans, there are still a lot of myths that circle the choice. You shouldn’t let these turn you away from the financing that could get you your dream car. Here are the three top myths when it comes to car loans.

A Low Credit Score Guarantees Rejection

This isn’t true at all. In fact, there are dealers and lenders that specialize in car loans for people with bad credit. Poor credit will not stop you from financing a car.

You Can’t Refinance if You Had a Poor Credit Score

When you’re approved of a car loan with a low credit score, you are given the opportunity to build your credit over again. After a while, as your score builds you will be given more options. It’s common for people to refinance their loan and come up with a cheaper rate after they have built up their credit score.

Income Doesn’t Matter if You Have Bad Credit

Income absolutely matters! Income and the other debts that you owe play a big role in the size of the loan you can be awarded. While lenders do pay attention to your credit, your income also plays a large role in whether or not you’re approved. This can also affect the rates that you’re given.

Don’t allow myths to turn you away from car loans. Even with bad credit there are many options out there. While it can be a difficult choice for many people to decide whether or not they want to look into financing for a vehicle, it’s important not to be deterred by myths. Only the facts should be an influencing factor on your decision.

Understanding Canadian Car Loans from A-Z

Written by Sean Cooper

Are you planning to purchase a vehicle? Unless you can afford to pay for it in cash, you’ll have to borrow the money. And there are a lot of factors to consider when choosing a car loan: should you finance or lease? What interest rate can you get? How long will you take to pay the loan back?

Everyone’s circumstance is different, and one car loan might be a perfect fit for your neighbour but not for you. Let’s take a look at the car loans Canada offers to see if we can simplify what might otherwise be an overwhelming landscape of info.

Car Loans – The Basics
A car loan is a personal loan in which a lender loans a borrower the funds needed to buy a car. In exchange, the borrower agrees to repay the lender the loan amount with interest, typically in monthly payments, until the loan is fully paid off. There are a few key concepts that are important to understand if you’re considering a car loan.

Principal
Principal is the total sale price of the car, and the amount you borrow. This includes any fees for the lender or dealership and any add-ons or options you may select.

Interest Rate
The interest rate is the percentage the lender charges the borrower on the money loaned. The rate given by a lender can depend on several factors, including: the lender’s prime rate; the borrower’s credit score; and the vehicle’s make and model. If you have an excellent credit score and earn a decent wage, you’ll typically qualify for the best (prime) interest rate on a car loan.

Term
The term is the period of time in which the car loan is to be repaid. Car loan lengths are typically between two and eight years. Longer car loans in Canada have the advantage of lower monthly payments, but can lead to the unfortunate situation where you have negative equity in your vehicle (you still owe money on the vehicle when it’s inoperable). For that reason, you might think twice before taking on a seven or eight-year car loan.

A general rule of thumb is to try to cap it at five years if your cash flow allows. (If you’re confident that you’ll have a steady source of income that you can budget a monthly payment from for the next five years.) If it doesn’t, consider buying a less expensive vehicle, or consider leasing.

Does It Make Sense to Lease, Finance or Buy a Car in Cash?
Why you might lease a car:
You prefer to drive a new vehicle: When you lease a vehicle, you’re essentially only renting it. The typical car lease lasts only two to four years. Once the lease is up, you can return the car and start the process all over again by leasing another new vehicle or you can buy out the lease from the dealership if you want to keep the vehicle.
Cash (flow) is king: The biggest advantage with leasing is cash flow. When you lease, your monthly payment will be lower than if you take out a car loan to purchase the same vehicle. Unlike a loan, where you borrow the full purchase price of the vehicle, with a lease you’re only borrowing the amount that the car will depreciate in value over the period of time of the lease. A vehicle that costs $600 a month with a car loan may only cost $350 a month with a lease.
You enjoy driving nice cars: The lower monthly car payment when you lease versus own means that you can afford a nicer make and model of car than you otherwise would be able to if you financed or bought the car.
You don’t drive very often: If you mostly use your vehicle for commuting short distances, leasing may make sense. You don’t have to worry about going over the distance limits on your lease and being forced to pay costly overage penalties. Most standard car leases come with a limit of 24,000 kilometres. As long as you stay within the limit, you should be fine.
Peace of mind: Since you’re always driving a newer vehicle, you’re less likely to incur costly car repairs since the vehicle is almost always under full warranted. Although note that if you do need car repairs, you may be required to get them done at the lease’s dealership, which may cost you more than taking your car to the neighbourhood auto mechanic.
Why you might finance (take out a loan) a car:
You drive long distances:When you finance (or own) a vehicle, you don’t need to worry how often you drive it. If you’re commuting long distances to work and planning to travel a lot, you won’t have to stress about facing penalties you’d incur when leasing. You’re generally better off financing instead of leasing if you plan to drive over 30,000 kilometres a year.
You’re in it for the long haul: Unlike a lease, once you pay off a car loan, the vehicle is yours. There are no more monthly payments to deal with. It’s an asset that can be used to make a stronger financial case, for instance, when applying for a mortgage. You can drive it into the ground or trade it in. It’s completely up to you.
Freedom of choice: If you’re a car enthusiast, chances are you’ll want to modify your vehicle. If you want to add a custom tailgate, you’re out of luck if you lease. Not so if you took out a car loan, in which you can customize your vehicle to your heart’s content.
Building your credit score: There are five factors that make up your credit score. Payment history is the most important factor, accounting for 35% of the score. By steadily paying your car loan over time, it can have an overall positive impact on your credit score.
Why you might buy a car in cash:
No monthly payments: If you have the cash, you might consider buying a vehicle outright. When you do, you don’t have any monthly car payments to worry about, which will reduce the mortgage amount you’ll qualify for if you’re planning to buy a home. You also won’t have to worry about going to a lender for financing.
Cash incentives: To entice you to pay in cash, the car dealership may offer you cash incentives (i.e. a discount on the car cost) as a sweetener.
How Does a Car Loan Work?
Applying for a Car Loan
You’ll need to complete the lender’s car loan application form, where you’ll provide your basic personal and financial information. You’ll also typically need to submit other documentation, including notices of assessments for two years, your monthly housing cost, the make and model of the vehicle you’re considering purchasing, and any monthly debt obligations you have. A lending specialist will then review your files and crunch the numbers to see if you qualify for the loan. Pre-qualification can be done to see if you can afford the car you want (this can help avoid dinging your credit score). Pre-qualification is just like applying for a car loan, but without pulling your credit report, and therefore avoiding the potential hit to your credit score.

When applying for car loans, you’ll want to limit the number of lenders you apply with, as applying with too many lenders in a short period of time can negatively impact your credit score.

Receiving a Car Loan
The process of receiving the car loan depends on whether your lender is a bank, online lender, or dealership. With a bank or online lender, a lump sum payment is typically deposited into your bank account. You can then use the funds to purchase the vehicle from the dealership. However, if you’re buying the car directly from the dealership, you won’t typically receive a deposit since you’re borrowing the money from the dealership who owns the vehicle. You’ll simply receive the vehicle and will be required to start making your car payments.

Repaying a Car Loan
Car loans have a set repayment schedule depending on the term of the car loan you choose. If you choose a shorter-term loan, your monthly payments will be higher, and if you stretch it out, your monthly payments will be lower (although you’ll pay more in interest over the life of the loan). To keep your credit in good standing, you’ll want to make your car payments on time.

The payments are typically withdrawn by way of preauthorized payment from your bank account. If you come into extra money (such as a tax refund, pay raise, inheritance or bonus at work), you can typically make extra payments above and beyond your regular/minimum car payments. This reduces the term of your car loan, thereby saving you money you would pay in interest.

Payment Terms
A car loan’s payment is usually fixed (stays the same) during the term of the loan. When you make a car payment, similar to a mortgage, a portion of it goes toward interest and a portion goes toward principal. Car loan payments are front-loaded and paid via amortization. As such, you’ll pay the most interest at the beginning of the loan.

How Interest Is Calculated
There are two types of interest calculations on car loans: simple interest and compound interest. With simple interest, interest is only charged on the original amount that you borrowed (the principal). With compound interest, interest is calculated on both the principal plus the interest accrued since the beginning of the loan.

When you sign up for a car loan, you should receive a financial disclosure, which expresses the interest rate as APR (Annual Percentage Rate). This takes into account the total cost of borrowing and includes compounding interest, fees and anything else you may be required to pay. This represents the true overall cost of the car loan.

Credit Score and Credit Report
It’s beneficial to have a high credit score when seeking out a car loan—the higher your credit score, the more likely you are to qualify for the lowest interest rate possible. So I recommend that you review your credit score and credit report before you apply for a loan.

You’ll want to request them from both the major credit reporting bureaus, Equifax and Transunion, since some lenders only report to one credit bureau. If you find that your credit score is on the low side, try to improve it by paying down your credit card balances and other outstanding debts. Keep an eye out for any inaccuracies on your credit report that negatively affect your score. If you see an error, take steps to correct it before applying for the loan.

Make and Model
Decide on the make and model of the vehicle you’d like to purchase. This will give your lender a purchase price so that they can come up with the terms of your loan.

Personal and Financial Information
Your lender will request personal information, such as your full legal name, date of birth and current address. They’ll also want to know about outstanding debts as well as rent or mortgage payments. If you’re putting money down on the vehicle, the lender may request to see proof of your down payment in the form of recent bank statements.

Driver’s License
Your lender may request that you provide photo ID in the form of a driver’s license. Having a driver’s license can help, since borrowers with a driver’s license are typically more likely to pay back car loans.

Employment History and Income
Lenders typically ask for your employment history for the last three years. To ensure you can afford the car loan, your lender will often ask for proof of income, in the form of notices of assessment for the last two years.

Banking Details
Your lender will request a void cheque and may request that you complete a preauthorized payment form to automatically withdraw the car loan payments from your bank account.

Types of Auto Loans
Banks and Credit Unions
When a Canadian bank or credit union approves an auto loan they typically deposit the loan amount directly into the borrower’s bank account. The borrower can then use the funds to pay the car dealership for the vehicle they’d like to purchase. This is often referred to as “direct lending,” since the car loan comes directly from a bank or credit union.

Dealership Financing
As the name implies, dealership financing is when the loan is administered by the dealership selling the vehicle. The biggest advantage of dealership financing is convenience: You can buy the vehicle and finance it at the same time and location. It doesn’t get any easier than that!

Just make sure you take the time to shop around, and be confident that you’re getting a car loan with a reasonable interest rate and favourable terms.

Online Lenders
Fintech (short for financial technology) has made it easier than ever to obtain a car loan. With an online lender, you can apply for a car loan from the comfort of your home. It’s a convenient approach to getting a car loan, as application forms are completed online. And it’s very easy to shop around for the best loan terms possible, which helps borrowers save more money.

Auto Loan Features You Should Pay Attention To
Before you start your search for the best car loan you can find, remember these key factors to keep an eye on:

Interest rate: The lower the interest rate on the loan, the less you’ll pay for the car in the long run.
Fixed/variable rates: Fixed-interest car loan rates in Canada remain the same for the term of the car loan, while variable rates can fluctuate with a change in the lender’s prime rate. Variable rates offered are typically lower than fixed rates, but you might nonetheless consider going with a fixed rate if your cash flow is tight or you’re risk averse.
Simple/compound interest: Simple interest is based on the principal amount of the car loan, while compound is based on the principal + the interest that accumulates during the compounding period.
Repayment schedule: If you’re looking to maximum monthly cash flow, you may go with a longer loan term, although the tradeoff is you’ll pay more interest over the life of your loan.
Payment frequency: Lenders often let you choose the payment frequency of car loans. Common payment frequencies include weekly, bi-weekly, semi-monthly or monthly payments. In terms of cash flow, it’s easiest if you choose a payment frequency that matches your pay schedule at work.

Can You Still Get a Car Loan After Bankruptcy?

Written by Jordann Brown

In the age of super high debt loads, with the average Canadian carrying over $22,000 in debt, bankruptcy remains one of the more misunderstood topics in Canadian personal finance. The confusion and myths surrounding bankruptcy in Canada remain in part because bankruptcy is still relatively rare. But that may be changing, as over 70% of members of the Canadian Association of Insolvency and Restructuring Professionals expect bankruptcy filings to rise over the next five years.

Whether you are going through bankruptcy now or considering it as a future course of action, it’s important to remember that people who experience bankruptcy aren’t consigned to financial ruin for life. Instead, bankruptcy is designed to help someone in financial trouble start fresh. Starting fresh means starting your life over, and for many Canadians, that could involve a post-bankruptcy car loan.

How Long To Wait Before Applying For a Post-Bankruptcy Car Loan

While bankruptcy will stay on your credit report for six years, you don’t have to wait that long before applying for new credit. In fact, during those six years, it’s important that you rebuild your credit by applying for and faithfully paying back credit of some kind (including loans). It’s unlikely that you’ll be approved for a car loan during bankruptcy without a significant asset to secure your loan, but after bankruptcy proceedings conclude, getting approved for a car loan is possible.

Finding Potential Lenders For a Car Loan After Bankruptcy

Finding the best car loan rates after bankruptcy is a little complicated. First, traditional lenders like banks may not be interested in lending you money for a car loan, or they may only do so at exorbitant interest rates. You can apply for a car loan through in-house financing from a dealership, but again, be prepared for higher interest rates.

While many dealerships will work with you to secure financing, especially if you can demonstrate that your income will support the payments, the amount they are willing to lend you may be less. For this reason, you should expect to finance a car valued at closer to $10,000 than, say, $50,000.

An alternative to in-house financing from a car dealership is working with a lending company that specializes in customers who are recovering from bankruptcy. These companies look beyond your credit score and do a deep dive into your financial situation. They weigh your income, recent payment history, credit score, down payment, and reasons for bankruptcy, and then offer you financing based on that information.

How To Increase Your Chances Of a Car Loan Approval After Bankruptcy

The first step to increase your chances of getting approved for a car loan is to increase your credit score. While your bankruptcy will remain on your credit report for six years, taking steps to build your credit score after bankruptcy does not go unnoticed. Here are some concrete steps you can take:

  • Apply for a secured credit card, use it regularly, and diligently pay off the balance every month
  • Never miss a payment on your utility bills
  • Keep your credit utilization rate to less than 35% of your overall credit limit
  • Avoid applying for several new sources of credit at once, which can temporarily decrease your credit score

On top of that, you should work to save up a decent down payment for your car loan. A large down payment demonstrates to your potential lenders that you have extra space in your budget for savings and car payments.

Finally, work to increase your income as much as possible. A good income will demonstrate to lenders that you can afford your monthly payments.

Be Wary Of Predatory Load Terms

Unfortunately, applying for any type of credit after bankruptcy is more complicated, and you may be turned down by several lenders. Due to the difficulty in obtaining credit, Canadians who have been through bankruptcy are a target for predatory lenders, and you need to be on the lookout for these companies that claim to offer good interest rates to those with bad credit, but don’t follow through. When evaluating a company as a potential lender, make sure to do your research and read online reviews and complaints carefully.

If you are offered car loan financing from a company that specializes in lending to Canadians who have been through bankruptcy, make sure to read through the fine print, every last bit of it. In particular, be on the lookout for high interest rates. While someone with stellar credit may qualify for a car loan rate from 0.00% to 6.00%, Loanconnect.ca reports that anyone with bad credit should expect to pay a rate as high as 30% to 60%. That may seem high, but payday lenders routinely lend money to customers with interest rates in the triple digits. Stay far away from loans with rates like these.

Other Factors to Consider When Applying For A Car Loan After Bankruptcy

Reading The Fine Print

Once you know the interest rate you may qualify for, pay special attention to the loan terms, especially payment frequency and whether you can refinance or pay off your loan early. It’s important to evaluate whether you can afford this loan, and the payment frequency will play a big role in determining this. Double check whether the payment for this loan is monthly, not biweekly or weekly, and that you can afford it at that frequency.

Refinancing And Early Payoff

On the same note, make sure that you can refinance this loan or pay it down ahead of schedule, because in a year or two, your credit rating may have improved enough that you can qualify for a much more competitive interest rate.

Credit Reporting

Finally, make sure that the car loan is reported to at least one of Canada’s credit reporting agencies, Equifax and Transunion. Not all dealerships report their financed loans to these credit agencies, but if you are making faithful payments on your car loan every month, you absolutely want that reported to the agencies so that you can improve your credit score as much as possible.

Finally, keep in mind that applying for a car loan after bankruptcy is difficult, but that difficulty is temporary. While you may have to downgrade your expectations now to afford your monthly payments with their hefty interest charges, if you continue to make your monthly payments faithfully, eventually your credit score will improve, and you’ll be on your way to a better financial situation.

Article reference: 
https://www.greedyrates.ca/blog/bankruptcy-car-loan/

Our Straightforward Car Loans Make Car Shopping Enjoyable

Think of the car features that you definitely want in your next vehicle. Would you like leather seats and a moon roof, or do you want plenty of seats and cup holders? Do you think you have a short list of favorite vehicles or are you open to anything that fits your budget? Even if you are undecided on a car just yet, we can take the worries out of getting the best car loan for you.

Car Considerations

The first impression of a vehicle comes down to two factors, ergonomics and personal preference. You should have ample head and legroom, feel that the window layout gives you good visibility, and like how the gauges and controls are laid out. If members of your family have car seats, it is a good idea to bring them along to see if they work well with the cars you are test driving.

If you have a set color or feature combination in mind that does not come around every day, you may have to look longer to find what you want. But, if you know what your top three color and make combos are, you may be pleasantly surprised by the number of cars available to test drive. Conversely, if color is not important to you, you may get a great deal on a car in a less popular color.

Financing the Transaction

When you have found the vehicle you want and are ready to make a purchase, we want you to know the total price of the used car you’ve decided to buy. We itemize any extended warranty and interest costs in all of our car loans. Of course we are always happy to consider your current vehicle as a potential trade-in, and we offer extended warranties for our used cars. This is a great way to handle any unforeseen repairs covered by the warranty.

Our financing staff are experienced in setting up a loan with terms

3 Car Loan Myths

If you have your eye on a new or used car, you may have to consider financing options. The problem that a lot of people face is that they don’t have optimal credit and may not think that they qualify. While many lenders offer bad credit car loans, there are still a lot of myths that circle the choice. You shouldn’t let these turn you away from the financing that could get you your dream car. Here are the three top myths when it comes to car loans.

A Low Credit Score Guarantees Rejection

This isn’t true at all. In fact, there are dealers and lenders that specialize in car loans for people with bad credit. Poor credit will not stop you from financing a car.

You Can’t Refinance if You Had a Poor Credit Score

When you’re approved of a car loan with a low credit score, you are given the opportunity to build your credit over again. After a while, as your score builds you will be given more options. It’s common for people to refinance their loan and come up with a cheaper rate after they have built up their credit score.

Income Doesn’t Matter if You Have Bad Credit

Income absolutely matters! Income and the other debts that you owe play a big role in the size of the loan you can be awarded. While lenders do pay attention to your credit, your income also plays a large role in whether or not you’re approved. This can also affect the rates that you’re given.

Don’t allow myths to turn you away from car loans. Even with bad credit there are many options out there. While it can be a difficult choice for many people to decide whether or not they want to look into financing for a vehicle, it’s important not to be deterred by myths. Only the facts should be an influencing factor on your decision.

Down Payments: Turning Upside Down to Right Side Up

There are many benefits to making a sizeable down payment on car loans. The more money you can put down up front, the less you will have to borrow. When your principal is made lower by a large down payment, you will pay less money in interest over the term of the loan. A large down payment can also get you out of upside down status sooner.

How Upside Down Happens

Being upside down on your car loan means that you owe more money on the car than it is actually worth. This is a normal occurrence in the early stages of the loan’s term. A car’s value depreciates quickly once you drive it off the lot. If you only pay 10% down, and the car loses 25% of its value in the first 6 months, it is easy to see how you can be upside down in a flash. As you make your monthly payments, it balances out, but if you are staying upside down for three or four years, that can be problematic.

Turning the Tables

The best way to move more quickly from being upside down to owing less than the car is worth is to make a large down payment. If you just put 5% down, you are barely covering the taxes and fees associated with the purchase. If, however, you can put down at least 20% of the purchase price, you should be outrunning your vehicle’s depreciation rate within two years or less (for a 4-year loan). Of course, if you can put even more than 20% down, that gets you into positive equity territory even faster.

Getting out of the upside down state can give you peace of mind when it comes to the overall value of your vehicle. If you can make a large down payment on your next car, you will be driving a vehicle that’s worth more than you owe on it in no time.