Most Canadians have car loans but have not given much thought to all of the work that goes into a car loan, they just see the monthly payment.
That’s where this post comes in. Our Beamsville car loans team outlines the process you’ll need to go through to qualify for a loan.
Types of auto loans
There are many different companies both public and private that offer auto loans. They can be categorized as prime lenders who focus on customers with pristine credit scores and verifiable income. The most common type of prime lender is a major bank but some carmakers also offer to finance to well-qualified borrowers.
Typically, to secure this type of auto loan your credit score should be over 700.
The other lender will focus on customers who have low credit scores and/or inability to prove their income. These lenders are sub-prime but some borrowers fall in the middle of the pack who have mediocre credit in the 620-650 range.
Accessing auto lenders
You may be under the impression that you can apply online for auto loans, and some lenders are on the Internet you should rethink that approach.
The average car loan can easily reach $50,000 and be spread out over 84 months! This is a long-term commitment and it behooves you to work with a local dealership that will be with you throughout your entire car buying experience.
Upside to working with a local dealership
Dealerships understand that most of their customers are going to need financing so they (the dealerships) already have a network of lenders they work with all the time. These lenders are usually a mix of prime and sub-prime lenders.
If you are an individual with really great credit, then the dealership may be able to get you a low rate but where the dealership shines is helping people with complex applications.
An example of a complex application would be someone who has a credit score that is below 680 and also has difficulty proving income.
The dealership has a relation with the various lenders and can explain your situation in greater detail. These lenders want to lend money and the dealership wants you to buy the car, they just need to make sure the number work.
One way you can increase your chances of success is to take proactive steps to improve your credit score. The initial step is looking at your credit report and noting whether there are any errors, you would be amazed by how much impact these errors can have on your credit score.
An option worth considering if you need a new vehicle urgently is to take a loan at a slightly higher interest rate. After you have secured the loan, be sure to follow the advice given by the car dealership to boost your credit score. Once your credit score reaches the 680-700+ range you can ask the dealership to refinance the car loan at a lower interest rate. This approach is very popular with buyers who had credit challenges in the past but want to do the necessary work to raise their credit scores.
Now that you know how these auto loans work and the benefits of working with a local car dealership, you can start shopping for a new car.
For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!
For any questions or concerns, please don’t hesitate to contact us here!