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This is Exactly how Car Financing Works in Canada

This is Exactly how Car Financing Works in Canada

If you are interested in knowing how car financing works in Canada, you are in the right spot. We will cover how to qualify for auto loans in Canada so the next time you are in the market for a new car, you will know precisely what to expect.


The auto loan marketplace has changed with the Internet


The “traditional” sources of auto loans where the car manufacturers themselves and banks and or credit unions. These institutions serviced the majority of consumers who qualified for prime interest rate loans. These lenders still focus on consumers who have great credit but these individuals only represent a small percentage of the entire market.


Some consumers had credit challenges in the past but are willing to pay a higher interest rate if it means they can buy a new car today. Instead of leaving these prospective buyers out in the cold, some lenders cater to this type of customer and charge a higher interest rate to offset the added risks with these transactions.


The only way for these alternative lenders to generate enough business to justify the risks they are taking is by offering their loans over the Internet to potential customers all over Canada.


How car financing works if it's a subprime loan


The subprime auto loan is geared to customers with a credit score below 650 and or they have a hard time proving they make enough money to qualify.  What the lender will do is look at the credit and income profile of the prospective customer and decide whether the risk of lending to them is reasonable.


If you have a stable job and can explain why you had credit challenges in the past, that will help allay any concerns the lender may have about not being repaid. Do you have any money to put towards a downpayment? Even $500 is an excellent gesture of goodwill and will demonstrate your seriousness to start the relationship on the right footing.


Since subprime loans are higher interest, the total amount of money you would be able to borrow to purchase a car is considerably lower than a prime loan. This reduced amount means you would have to buy a used car or a new one that is within the budget set by the lender.


What the majority of consumers with credit challenges do is take the loan and after 1 year of consistent payments on time, is refinance the car loan at prime rates. Your credit score is not set in stone, it can go up if you make your payments on time, all the time.


Selecting the right auto loan provider


We touched on how auto loans in Canada work, but we should look at how to select the auto loan provider that is a good fit for your needs. Some websites offer loans but you might consider visiting a car dealership in your area that offers 2nd chance credit car loans.


While shopping online is great, there is nothing quite like meeting with someone in person and having them explain the steps you must take to fix your credit and eventually qualify for a prime car loan. Armed with this knowledge, you should have no issues rebuilding your credit and owning the car you always wanted.


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Categories: Car News