Borrowers with poor and average credit have fewer options than customers with stellar scores, whether buying a car, planning home improvement, or going on vacation. The good news is that there are things to do to obtain a car loan and finance the purchase of a vehicle. If you are a new immigrant, recent graduate with no credit exposure, or plan to purchase a new car, then what you can do is boost your credit, make a bigger down payment, and get preapproved.
Improve Your Credit
If you can wait for a couple of months, then you may want to boost your score to prove that you are a low-risk borrower (for tips visit: https://www.creditavenue.ca). What you can do is dispute errors on your report, pay off accounts that are past due, get a secured card (for tips visit: https://www.creditavenue.ca/canadas-top-ten-secured-credit-cards/) and make regular payments, etc. This way you will increase your chances of getting a car loan with a low rate and better terms. Make sure you make timely payments, whether it is utility bills, credit cards, or other outstanding balances and accounts (for tips visit: https://www.creditavenue.ca/canadian-guide-to-credit-cards-for-bad-credit/).
Making a bigger down payment is one way to improve your chances of approval and qualify for a better rate. What is more, you may qualify for a larger loan if you make a bigger down payment.
Check Rates and Contact Different Lenders
It is a good idea to check loan terms and rates in advance. Obviously, if you have stellar credit, financial institutions will be willing to offer low or below the average rates. The rate will be higher if you have poor credit but avoid lenders that offer rates that are double or triple the average.
You may want to check with different loan providers as well, including finance companies, car dealerships, financial services groups, unions, banks, peer to peer lenders, and so on.
Old vs. New Vehicle
Whether you plan to buy a new or old vehicle is also an important factor for financial institutions. Older or used vehicles cost less but loan providers usually offer higher interest rates compared to new ones. On the other hand, if you have an emergency fund and find a cheap vehicle, you can use cash.
Term and Loan Period
According to financial experts, it is better to apply for an auto loan with a shorter term. The reason is that the rate is usually lower, despite the fact that monthly payments are higher. Thus a 3-year loan is often a better deal than a 7-year loan.
Borrowing with a Cosigner
This is yet another option to look into if you have tarnished credit and find it difficult to save enough for a bigger down payment. Ask a close friend or family member to cosign for you to obtain a reasonable rate. The same goes for borrowers with a part-time job, seasonal or variable income, low income, and high debt to income ratio. Make sure you choose a cosigner with a high income and very good or spotless credit to get a low-cost loan. Obviously, the cosigner will be responsible for loan payments, and it is important to pay off your balance in a timely manner. The good news is that adding a cosigner can help improve your score.
Other Factors to Consider
Unions, banks, and other loan providers take other factors into account, including length of work history, work history (types of jobs you worked), type of loan, personal and household income, location, and others. Whether you are a new immigrant, have a part-time job, are retired, etc. are other factors bank take into account.