It’s that time in life when you’re starting to think about buying a car. Figuring out how to save enough ... Read more
It’s that time in life when you’re starting to think about buying a car. Figuring out how to save enough money to buy a car outright is tough. You need the right vehicle, but you can’t afford it upfront. That’s where auto loan financing comes in. This guide will explain what auto loan financing is, how it works and tips for choosing financing that best suits your needs.
When purchasing a vehicle, the buyer may either pay upfront using all cash or finance the car by paying in installments over time. A lot of individuals don’t have enough money to buy a vehicle outright since cars can be quite costly. In this case, borrowing an amount over a specific period is beneficial as it allows ownership at the financial end of your loan term. Typically, car loan payments are split up between bi-weekly or monthly repayments. Car loans are secured by the vehicle being used as a collateral asset for the loan. If a car loan is defaulted on, the lender may repossess the vehicle and sell it to repay the loan amount.
When purchasing a vehicle, the buyer may either pay upfront using all cash or finance the car by paying in installments over time. A lot of individuals don’t have enough money to buy a vehicle outright since cars can be quite costly. In this case, borrowing an amount over a specific period is beneficial as it allows ownership at the financial end of your loan term. Typically, car loan payments are split up between bi-weekly or monthly repayments. Car loans are secured by the vehicle being used as a collateral asset for the loan. If a car loan is defaulted on, the lender may repossess the vehicle and sell it to repay the loan amount.
When purchasing a car, you can take out a loan for 36-72 months. However, loans for up to 8 years (96 months) are also available as they make it more affordable to buy a vehicle. The longer the term, the smaller your monthly payments will be. Car loans have interest rates attached to your loan term. Interest rates for car loans will vary and depend on a few factors. Generally, the better your credit history and score, the lower the interest rate on your car loan. Rates may also differ depending on loan term length; in most cases, longer terms result in higher cost interest rates. As of 2021, dealers offer car loans with a range from 0-46.96%.
When considering a loan term, there will be a trade-off between lowering the monthly payments at the cost of increased interest charges. The longer the term you choose, the higher your interest payments will be. Similarly, when selecting a short-term loan, payments are lower than those of a long-term. The example below demonstrates how interest rates change depending on the duration of your auto loan.
The price of the new vehicle is $25,000 and say 5% GST(in AB), with the interest rate at 4.16% for a loan term of 36 months. The car financing loan is broken down into;
For that same vehicle the price is the same on the shorter loan term of $25,000. Similarly, the GST will remain the same, however, the loan term length is extended from 36 months to 60 months. The interest rate is higher for the longer loan term at hypothetically 5.14%. The car loan financing is broken down into;
Monthly Payment:
$776.87
Financed Amount
(Vehicle price + GST):
$26,250
Total Interest Paid:
$1717.48
Monthly Payment:
$497.06
Financed Amount (Vehicle price + GST):
$26,250
Total Interest Paid:
$3573.32
This example illustrates the difference in total interest paid over the two different loan term lengths. The monthly car payments will be more affordable on a 60-month loan but overall it costs $1,855.84 more than if you’d taken out a 36-month loan for the same amount of money. If you choose the longer loan term you will end up paying significantly more in interest payments over the lifetime of the loan. When choosing the loan term that is right for you it is important to keep in mind the total cost of the loan overall.
Once you are ready to apply for car loan financing you must make sure that you have all the required paperwork for the approval process. The more prepared you are, the quicker the process will be to find out if you qualify for the car loan. Below is all the information you need to help you prepare the required paperwork for car loan financing.
Maintaining adequate funds for debt repayments is a key consideration when purchasing something on credit. Your primary objective should always be having money available to pay off any financial obligation that comes due during your agreed period of loan repayment because late fees and missed payments can make it difficult to maintain essential levels of consumption and leave little remaining disposable income at the end of each month.
Unsure on how to buy a car if you don’t have enough money saved up for the full purchase? Don’t worry, we can help. No matter your score, there are always lending options to suit you; with low monthly payments and better interest rates. We have a variety of financing options readily available that will work with your financial needs. Find the best rate possible with pre-approval before you commit. Take a moment to see what interest rate and monthly payment you qualify for.