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Solid financial advice can help you with the car buying process

Overview

Published: 06/21/2016

by Arielle Duke

 

Most Canadians don't have enough cash in the bank to buy a car outright, so they must finance their purchase to eventually own the vehicle.

Financial options include bank loans arranged through car dealerships, and loans or lines of credit obtained directly from a financial institution. Financial decisions of this magnitude can be intimidating and as a result lead us to make rushed, impulsive choices. Here are some tips on how to put yourself in the best position when looking to finance.

Dealers may seek and receive offers from multiple lenders interested in financing your loan; the chosen lender may pay the dealer a commission for arranging your business. Ask the dealer to show you all the financing options they received, and to discuss them with you. Also compare the financing options available through different dealers.

Before or after you visit the showroom, ask your own bank or other financial institution about the terms and conditions they'd offer on a loan or line of credit. You may be able to negotiate a better rate than those offered by the dealerships.

If that's the case, then you have the ammunition to haggle.

Car buyers should also be aware that dealerships are increasingly promoting long-term car loans lasting 72 months (six years) or more, compared to more traditional car loans of 60 months (five years) or less.

The longer you stretch out the loan term, the lower your monthly payments—and the more interest you will pay over the long run, adding greatly to the overall cost of your car.

Keep in mind that if you take out an eight-year loan to buy a vehicle, you will likely decide to sell the car long before the loan term is up; this typically happens around the four-year mark. After the trade, you will need your bank's approval to roll the remainder of that debt into a new loan for a new car. This is the start of a car-loan debt treadmill identified by the Financial Consumer Agency of Canada (FCAC) as an increasing concern.

Use FCAC's budget calculator to help plan the purchase of your next car. You can also visit ItPaysToKnow.gc.ca for more information.

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