If you’re considering financing a car for the first time, you’re likely feeling a mixture of excitement, confusion, and possibly even a little overwhelmed. 

Buying a new car is a great way to enhance your commute, whether you’re looking at upgrading from your current model to something a little more reliable or looking to get behind the wheel of your very first vehicle. At Auto Loan Hub, we know that Canadians often find the prospect of taking on a loan daunting, and that dealing with credit scores, interest rates, and other involved details can feel intimidating without the right help and information. We’re here to make owning your next vehicle as hassle and stress-free as possible and to help you get behind the wheel of your dream ride in no time! If you’re in the market for a new car but aren’t too sure what to expect if you need to finance a vehicle, below are a few essential tips to keep in mind. Read on to learn more!

Know Your Budget

Buying a vehicle is a major investment. Whether you plan to pay for the car outright or finance it (as most do), it’s important to do some homework before you start looking at specific models and sign on any dotted lines. The first step is to sit down and thoroughly evaluate how much you realistically afford, considering multiple factors, including the cost of fuel, insurance, maintenance, and registration fees. Auto loan payments are a long-term part of your monthly budget, so it’s crucial to ensure that you can handle costs without overextending your budget and losing the ability to handle other unexpected expenses that may come up over time. A good rule of thumb is to spend no more than 15-20% of your monthly income on car-related expenses, including the loan payment, when possible. 

Auto Loan Insider Tip: Using our online loan calculator is a great way to get a clear picture of what fits in your budget based on different loan amounts, interest rates and terms. 

Check Your Credit Score

Your credit score directly influences the financing options available to you. Those with higher credit are often able to secure better loan terms, including lower interest rates, which save you a considerable amount in the long run. Scores of 650 and higher are typically considered to be in “good standing”. For those with lower scores, it’s worth noting that there often are still viable financing options from specialized lenders; however, you may face higher interest rates and stricter repayment terms. 

Knowing your score before you shop can help prepare you for conversations about financing and can put you in the best position to find the rates and provider that works best for you. 

Shop Around for the Best Loan

One of the biggest mistakes people make when purchasing a vehicle is accepting the first financing offer they receive. It’s important for drivers to remember that dealerships typically offer terms that are best suited to them, and that banks, credit unions, and online lenders also offer auto loans, often with more variable interest rates and terms. Never be afraid to shop around and compare loan options to secure what’s best for you!

Auto Loan Insider Tip: Getting pre-approved for a loan from a lender before you visit the dealership can give you a clear picture of what you can afford and give you more negotiating power when discussing financing.

Consider the Loan Term Carefully

Auto loans in Canada typically range from 36 to 84 months (3-7 years). While longer loan terms typically offer lower monthly payments, it’s important to be aware that they often come with higher interest rates. Longer terms also mean it will take longer to build equity in your car, and you may end up paying more in interest by the end of your contract. First-time financers should weigh the pros and cons of term length and consider whether upfront savings are worth spending considerably more in interest throughout the lifespan of your loan. 

Look Into Trade-Ins or Down Payments

If you already have a vehicle, you have a valuable resource that can go a long way toward reducing the amount you need to finance, as can making a larger down payment on the base price of the newer vehicle when possible. Both avenues lower the amount you need to borrow, which in turn lowers your financial risk and increases the chance of having your loan approved, especially as a first-time buyer. 

Understand the Total Cost of the Loan

It’s easy to focus on monthly payments but to understand the real cost of your loan, you must understand the total cost, including interest rates, loan terms, and any other applicable fees. The more informed you are, the better prepared you’ll be (not to mention more confident!) to handle all the financial details throughout the entire duration of your loan. Ask your lender for the loan’s total cost or the Annual Percentage Rate (APR), which includes interest and any fees. This will give you a more accurate understanding of what you’ll ultimately pay for the car and put you in the best position possible to make an informed decision.

Find Your Next Ride With Confidence With Auto Loan Hub

Financing your first car can be an exciting step toward independence, but it’s also a decision that requires careful consideration. At Auto Loan Hub we’re passionate about connecting Canadians with the knowledge and resources they need to finance with ease and helping you find your dream car with minimal hassle. Check out our car loan info hub here, and learn more by contacting our team today!