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How Can I Get A Cheaper Car Loan In Waterloo?

How Can I Get A Cheaper Car Loan In Waterloo?

Our Waterloo auto loan team fielded an interesting question from a customer last week. It’s a familiar theme but in a format we don’t hear very often, namely ‘Why does my friend have a cheaper car loan than me?’


We don’t know many friends that would share such financial information with each other. Yet it’s great that some of you do. That’s real friendship!


Anyway, back to the matter at hand. Why would a car loan be more expensive for one person than another even though they borrowed the same amount at roughly the same time?


Cheaper Car Loan In Waterloo


Calculating the cost of a Waterloo auto loan is not just about the amount you borrow. It’s more about who is doing the borrowing.


Even two close friends, in very similar financial situations could see very different costs when borrowing money. Your credit history, payment history, credit mix and more combine to make your credit score. These are unique to everyone and while you may have a similar credit history to your friend, it won’t be the same.


This can be enough to make the costs different.


The main cost of an auto loan is the interest. As this is calculated partly on your credit score, you can see how even a minor difference between two people can mean different rates.


Auto loan interest rates


Auto loan interest rates are worked out using Canadian interest rates plus a little on top for the lender. That little on top is the lender’s profit and something to help protect them from perceived risk.


That little on top, when front loaded in a loan means the lender stands a higher chance of recouping all their money during a loan. If you default down the line, chances are, the lender will have made most of their money back. The rest they could recoup with a repossession if they needed to.


The lower your credit score, the higher perceived risk you are seen to be. The higher the risk, the higher the interest rate, to help protect the lender.


It’s not personal, it’s how all lending works.


Even a small difference in credit score can means a higher or lower perceived risk. Which will have an impact on the interest rate you’re charged.


Other things also influence the interest rate:


The amount you’re borrowing – Usually, the higher the amount, the lower the rate but it doesn’t always work that way.


Your income and outgoings – The more income you have, the lower your potential risk, so the lower the interest you’ll be charged.


The amount of debt you have – If you already have debt, you may be seen as a borderline risk, which may be reflected in the interest rate. Someone with little or no debt will be viewed as low risk as there are few other things to interrupt payment.


Your debt to income ratio – This is similar to the above, where the amount of debt you already have may be close to the ‘ideal’ 30% limit. If your debt is already close to 30% of your income, you will be regarded as borderline so may have to pay higher interest.


While it may not seem fair that two people in very similar situations pay different interest rates, there is method in the madness. It isn’t often we can say that but this is one of them!


If you need help or advice on anything to do with auto loans in Waterloo, contact Car Nation Canada today, we can help!


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Categories: Car News