Buying a new vehicle is an exciting milestone, but like any major investment, it requires a little pre-planning and research for success. Since most Canadians aren’t able to purchase a vehicle for its full cost upfront, financing is a major point of consideration when looking for a new car, regardless of whether you plan to buy off the lot or purchase a used model. Without the right knowledge, it can be easy to fall into the many common points of confusion that lead to problems for owners and potentially set yourself up for significant headaches in the future.
At Auto Loan Hub, we’re here to provide Canadians with vehicle and financing solutions you can trust, and are passionate about making sure you have the info you need to buy with confidence. Below, we’ll cover some of the top mistakes people make when financing a vehicle. Read on to learn how you can avoid falling victim to them!
Mistake Number One: Focusing Solely on Monthly Payments
While it’s perfectly understandable that people are concerned with monthly payments, especially when budgeting around rent, groceries and other routine expenditures, one of the biggest mistakes Canadians make is focusing exclusively on getting the lowest rate possible for their regular payment. Even though you may feel like you’re saving with a lower payment, what most don’t realize is that they actually stand to lose considerably more in the long term due to longer loan terms, which accrue more interest over the life of the loan.
Instead of focusing on the monthly payment alone, look at the total cost of your loan, including interest. Shorter loan terms may come with higher monthly payments, but for those who can afford to, being more aggressive with your repayment schedule will help reduce your interest and save you in the long run.
When budgeting for your monthly payment (and total spend), it’s also crucial to factor in additional expenses such as taxes, registration and insurance fees, the cost of gas, and any other related costs. The more informed you are, the more comfortable and confident you’ll be when it comes to managing the full cost of owning and financing your new car.
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Not Knowing Your Credit Score
Your credit score is one of the most important factors in determining the interest rate on your vehicle loan. Yet, many Canadians are unaware of where their credit stands prior to applying for a loan. In Canada, credit scores above 650 are considered to be good, and you are often “rewarded” with more favourable loan terms, including lower monthly payments and lower interest rates for the duration of your loan. If your credit score is lower, lenders may offer higher interest rates, leading to higher monthly payments and total costs. Staying aware of your credit score and taking the time to fix any factors that may influence it in a negative manner- like missed payments and outstanding debts- go a long way to rebuilding your credit and saving on loans in the future.
Skipping the Pre-Approval Process
While you can get a loan without securing pre-approval, what many don’t know is that skipping the pre-approval process typically leaves you at the mercy of dealer financing, which often has less favourable interest rates and terms.
Getting pre-approved for a loan puts you back in the driver’s seat and allows you to compare rates and terms from different lenders to find the deal that works best for you. Just like making any major investment, never be afraid to shop around and don’t feel obligated to take the first offer thrown your way.
Failing to Make a Down Payment
Skipping a down payment might seem tempting, especially if you’re eager to save on upfront costs. Even though you may pay less today, down payments are a vital part of lowering your monthly payments and interest rates for the total duration of your loan. Wherever possible, try to make at least a 10-20% down payment on your vehicle. This reduces the amount you need to finance and can potentially lower your interest rate and monthly payments.
Buying a New Car Doesn’t Have to be a Hassle
Setting up vehicle financing can be a complex process, but by avoiding these common mistakes, you can secure more favourable terms and ensure that your car loan fits within your financial goals. At Auto Loan Hub, we’re here to help you navigate the car financing process in Canada with confidence. Reach out to us today to learn more!
