Payments on car loans are calculated using three components:

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Principal

The total cost of a vehicle including any fees that the lender or dealership may have for the car loan and any options or add-ons you choose.

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Term

The length of time that payments will be made for. Typically terms will run anywhere between 36 Months and 72 Months (Shorter or longer terms are sometimes possible).

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Interest Rates

The percentage that the lender is charging for you to borrow money. Interest rates can vary depending on whether the vehicle and the risk the lender perceives in lending the loan.

When you get a car loan you are typically making payments back to a lender rather than to the dealership. That being said, some dealerships will offer in-house financing, which might allow a customer with bad credit to get an auto loan in instances where they otherwise would not have been able to. In this case the car loan is directly with the dealership or “in-house”.

Canada Drives has partnered with over 300 of these dealers across Canada who offer special financing programs. Through our extensive network we can quickly match you with a local dealership in your area who can help secure financing for you, regardless of your credit history. Get started by completing our application in minutes and get approved in as little as a few hours.

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Auto Loan Basics

Financing a new or used vehicle with a dealership, bank, or credit union is common (skip down to Auto Loan Financing Options for more details), but exactly what goes into determining your car loan?

Simply put, you can expect potential lenders to look at:

Employment or Income

Driver's license

Bank Account

Current Address

Down Payment

Your credit score

Your ratio of debt to income

The size of the loan and the down payment

The length of the loan

The age of the vehicle

Auto Loan Financing Options

Many buyers—especially those purchasing their first vehicle from an auto dealer—believe getting a loan with the dealership is their only option; while this is a common option, it isn’t the only one.

Below are several ways buyers can obtain car loans, along with a few of the advantages and disadvantages of working with each type of auto lender.


Dealerships

Again, it’s common to finance a vehicle with the help of a dealership; in fact, it’s probably the most convenient option. Once you decide on a vehicle, you can both buy and finance it in one day.

Your dealer will arrange all of your auto loan financing requirements for you. Plus, you might get better financing rates than you would with another lender if the dealership is trying to get rid of its end-of-the-year inventory.

However, “convenient” doesn’t always mean “best”—at least not for all buyers. For example, financing a vehicle with a dealership sometimes means more expensive interest rates (especially if you have a less-than-stellar credit score), additional and often unnecessary fees, and working with third-party lenders with whom you don’t already have a relationship.


Manufacturers

Generally, getting a car loan through a vehicle manufacturer means working with the dealership to take advantage of special financing deals offered by the manufacturer itself and not the dealership. Sometimes, you’ll see commercials and other advertisements for manufacturer financing offers, or your car salesperson will tell you about them. Of course, it’s always wise to ask about these offers, too.

Although manufacturer financing deals can get you low financing rates, they’re usually only available to people with excellent credit scores.


Banks

For many, getting a car finance loan from a bank is the best option—especially if you work with a bank with which you already have a relationship. Getting a bank auto loan means you’ll already know how much you can afford before you start shopping for your car. Often times, a bank can negotiate lower interest rates and shorter loan terms.

Perhaps the only downside to getting auto loans from banks is having to make the extra trip before visiting the car dealership; however, if you can get better loan and interest rates, it may be worth it.


Credit Unions

Working with a credit union is similar to working with a bank; in fact, some people use credit unions for all their banking needs. Just like working with banks, getting an auto loan from a credit union means you know your financial terms and conditions upfront, before you even step foot on the car lot.

However, even though credit unions generally offer lower loan rates than do banks, there are occasions when credit union interests rates may be higher. Be sure you fully understand the loan interest you’ll have to pay before you sign the dotted line.


Online Auto Financing

Online auto financing is becoming increasingly popular. Similar to working with your bank or credit union, working with an online auto financing company can help you do everything from completing the car loan application to getting pre-approved for your loan. Plus, because it generally costs less to do business online, online finance companies might offer even lower rates than traditional banks and credit unions.


Getting Pre-Approved Car Loans

Car loans with dealerships or manufacturers take place at the dealership, generally after you’ve decided on a vehicle. Working with a dealership or manufacturer can puts you on the spot, leaving room for finding out your interest rates are too high, your credit score isn’t up to par, or worse, you don’t qualify for a loan at all.

Getting a pre-approved car loan is beneficial because you walk onto the car lot knowing exactly how much money you can afford to spend, making it much easier to shop within your budget. You’ve already been approved for the loan, and you know the exact terms and conditions of the loan.


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