With interest rates tracking higher in Ontario, there are some things that prospective car buyers need to be aware of if they want to get a deal they can afford.
We intend to give you the information you need to make the right decision, but we need you to stick around until the end of this conversation.
Car loan underwriting fundamentals
The first thing you need to understand is that the car lending industry in Ontario is very competitive, and there are lenders that cater to a variety of different borrower profiles.
There are lenders who cater to borrowers with perfect credit scores and top-notch income. Think of these borrowers as your prime candidates.
Another segment of borrowers falls under the subprime category; they have credit issues or difficulty in substantiating their income.
Then there are borrowers who fall in between the prime and subprime categories.
Your credit score and income dictate whether you are a prime or subprime borrower. Both TransUnion and Equifax provide free access to your credit report and score.
If your credit score is over 720, then you qualify for the most competitive financing terms in Canada.
The challenge with rising interest rates, even though you have a great credit score, with interest rates rising, you are forced to pay more to finance the purchase of the new vehicle.
While your credit score plays a deciding role in how much interest you pay on a car loan, your income is what dictates the maximum loan you can afford.
Lenders in Canada will not approve a new car loan if your debt-to-income ratio exceeds forty percent.
To calculate this ratio, look at your total monthly pre-tax income and multiply that amount by forty percent; this is the maximum amount of debt you can service based on your income.
So long as your credit is in the fair range (620+), and you have documentation to prove your income, then you will be able to get approved for a car loan, but we cannot stress how important it is that you move quickly before rates go up.
The best place to get an awesome car loan in Ontario
We would be doing you a disservice if we didn’t tell you where to get an awesome car loan in Ontario.
You should visit your local dealership and test drive the full range of vehicles in its inventory until you find the car you like the most.
Since the average car loan is around 60 months, you need to pick a car you are going to love for quite some time.
After you have found the car you love the most, the dealership is going to work with lenders throughout Ontario and the rest of Canada until they find the one who has the best deal out there.
Only when the dealership has identified the lender with the best terms will they bring the deal to you for signing.
While all of this sounds complicated, the dealership is able to bring everything together in a few hours; this means if you head over to the dealership now, you can drive home in a new car today.
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!