Going back to school shopping? Is a car on your list?
Whether you’re a student proactively looking for a car yourself or a parent looking to help your child out, you more than likely have a few questions about how to find the best car loans in Canada.
Where do you find car loans? What are all the available options? Can you still apply for a car loan even with bad credit?
Before spending hours of research, continue reading our guide below on how to find car loans in Canada.
Car Loans 101
Understanding car loans can be a confusing and stressful process, but it doesn’t have to be! Knowing a few simple components will allow you to better understand any car loan that you’ll come across.
Car loans in Canada are calculated by combining three different factors:
This is the total amount of the vehicle, which includes any fees from the lender and/or dealership, and any add-on packages you choose.
This is defined as the entire amount of time you’ll be making payments. Typically, the terms for loans can range from 36 months up to 72 months. There is the possibility for shorter or longer terms.
3. Interest Rate
Percentage that the lender charges for the borrowed money. This rate will vary based upon the vehicle and perceived loan risk (calculated by the lender).
Who Will I Make Payments To?
That will depend on the institution that you choose to finance through.
Usually, one will get a car loan through a lender, which in that case, the monthly payments will be sent there. There are some dealerships who do offer in-house financing. If that route is chosen, your monthly payments will go directly to the dealership.
When you work with a broker like LendingArch, we simply help you find the right lender for your situation and financial goals. Think of us less as a lender (as we don’t fund your loans) and more of a matchmaker.
What Documentation Do I Need to be Considered for a Car Loan in Canada?
Before embarking on your car search (and subsequent car loan application), the team at LendingArch encourages you to gather all the proper paperwork ahead of time. This will save you both time and frustration.
Employment & Income Verification
In order to qualify for a car loan in Canada, someone must typically be at their current employer for at least three months. Their income needs to be at $1,800/month. Printing the most recent pay stub or having one saved electronically can suffice for verification purposes but you don’t need this for a pre-approval. For students that might not meet this criteria, there are lenders who are flexible and can still get you into a car by the time your first class starts or you can get a co-signer (parents usually fit this bill).
You must have a valid driver’s license and be the age of majority in the province that you live in. This will tell lenders that you’re less of a risk, thus helping to get a lower interest rate. High school students: this means you need to pass that first driving test BEFORE you jump into car shopping – good luck!
Bank Account Information
More often than not, your monthly loan payments will be directly taken out of your bank account. Either a void check or stamped pre-authorization form will help in the process of setting up these automatic payments. For students and parents helping out, a separate (shared) bank account could be set up for this specific purpose, just make sure that you always have enough money for the monthly payments. Some families opt to have both the parents and students add money to the account, as this is a way for students to take on some of the budgeting responsibilities with the guidance of their parents.
In order to complete verification, one must provide their current address. For students living near campus, you can use your permanent address.
Down Payment Amount
While not a necessary, having a down payment means there will be less to finance which could improve the chance that you’ll get approved for a car loan. Deciding 1. If you will have a down payment, and 2. How much that will be can help smooth out this process.
Finding a Car Loan in Canada
The majority of Canadians can find and secure a loan in three ways: via a bank, an auto dealership, or a broker. There are, of course, pros and cons to each.
Financing a Car Loan Through a Bank
Going through your own bank means that you’ve already developed a relationship with the bankers and employees there. For parents who are helping their children get their first loan, this relationship could be helpful.
You’ll also be able to walk in at any time and have a meeting with the financial advisor. Due to this relationship, they will more likely accommodate you should there be any late payments, and they might be willing to negotiate payment terms.
However, while your local bank won’t mark up the interest rate, it might be higher than you’d expect. Plus, your loan application could get denied if you have bad credit.
Financing a Car Loan Through the Dealership
For starters, this approach is the easiest since you can shop and buy/lease a car all in the same day.
While there might be lower interest rates, they will be marked up from what you’d see at a bank. This environment can also be high pressure, and we recommend that you read through all fine print before signing anything.
This option also limits your ability to shop around with loans. Even though a dealership may have several cars that fit within your budget, the loans for each one will still be coming from the same lender.
Financing a Car Loan Through Brokers
A car loan broker in Canada, like LendingArch, does the shopping around for you and will pair you with a lender who fits both your financial and new car goals.
The loan application process only takes a few minutes, pre-approvals are usually sent within 24 hours, and you’ll have a wide selection of lenders to choose from.
Since brokers are the middle-man (we prefer matchmaker), they are able to find you the best rates and serve them up in an unbiased way.
That being said, we don’t fund your loan, so we can’t change rates or guarantee loan approval. But what we CAN do is highlight how likely you are to be approved for a given loan, based on the questions you ask in our car loan calculator and the requirements listed by the lender.
This is especially helpful for students who may not have a lot of credit built up yet and are worried about which loans they should apply for.
We take our job very seriously, so we always make sure this information is as accurate as possible!
Can I Still Get a Car Loan if I Have Bad (or no) Credit?
There’s good news! If you apply for a loan with the right lenders, you should be able to receive a loan regardless of what your credit score is.
Basically, lenders want to know that, if they give you a loan, you’ll be able to pay them back.
Looking for an affordable vehicle while also showing that you’re increasing your credit score over time will help lenders feel at ease. This is especially true for those full-time students who might still be working on building up credit.
Staying realistic, getting a co-signer (if needed), being able to afford a down payment, and earning enough income will also show lenders that you’re not a credit risk.
Should I Have a Cosigner?
Honestly, it depends. We know that, sometimes, it’s not possible to find a co-signer. And that’s why, LendingArch doesn’t require one.
However, finding a (local) family member or friend that is willing to sign with you, may increase your chance of getting approved for a car loan in Canada. It is important that the co-signer has good credit as that will reflect well in the lender’s eyes.
You should also note that this loan will be on your co-signer’s credit report and he/she will be responsible for any debt that you might not be able to pay. You’ll need to make sure that your co-signer is aware of this before proceeding.
If you’re unable to have a co-signer, there’s still hope.
LendingArch has plenty of experience finding lenders who are happy to work with those who don’t have a cosigner, or have little to no credit. Some key items to think about should you go down this path include:
1. Look at your credit score and (re)build it
Taking out a secured loan can oftentimes help Canadians rebuild their credit score a bit faster. Upon reviewing your credit report, it’s important to report any errors to major credit bureaus, Equifax, and Transunion to get them removed.
2. Know that a bigger down payment can go a long way to getting approved with a low interest rate
We remember what it’s like being a broke student, but even $500 can make a huge difference. Saving up money and doing some simple loan calculations on loan amounts vs. monthly payments can help. Plus, a bigger down payment will tell lenders that you are committed to paying back the loan-which means you’re less risky.
3. The more monthly income the better
Additionally, the more money you have in the bank will give you a stronger case to lenders. Taking on a part time job after school or some freelance work between classes will show lenders that you’re serious and low risk. Plus, you’ll have some extra change for those weekend roadtrips!
How Does Car Insurance Work for Students?
Typically, car insurance rates are calculated based on age, driving experience, and gender. But, sometimes, good grades and multiple-car discounts (if students remain on their parent’s insurance) apply, too.
As a student just starting out, these rates might be too high to afford. On the reverse side, parents should also be aware that adding a young driver to their insurance policy can increase the monthly rate.
We suggest getting a few quotes before making the decision about which one is better for your family.
Usually adding a young driver under a parent’s policy is almost always less expensive than creating a separate policy. Of course, either using an online calculator or talking to an insurance agent is the best way to get exact rates along with understanding all of the pros and cons associated with policies.
Can a Car Loan Help Build Credit?
If you pay your monthly loan payments on time, then yes.
The most important factor to consider about credit scores is paying debt in a timely manner. In doing so, it indicates that you’re responsible with your debt and your scores will increase to reflect that thus helping to build up your credit over time.
Want a bonus boost? Try paying a little bit more than your minimum payment.
Finding Car Loans in Canada Can Be Easy
Back-to-school can be a crazy time, no matter what age your student is.
But car loans can be as simple as 1-2-3. We promise!
Here at LendingArch, we make finding a car loan as easy and stress free as possible. Our team is on standby and ready to assist you at any point during this process, we’re just a simple call away.
Ready to get started? Find a car loan in Canada that fits the needs of your family today!