Car Loans Basics
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Buying a New Car
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Guide To Buying A New Car
Buying a new car can be a fun experience, but it can also be overwhelming if you don’t know where to start. There is more to car buying than picking what looks good and what colour you would like it to be. In this step-by-step guide, we’ll walk you through the process of buying a new car in Canada to help make it a smooth and stress-free experience.
Setting Your Budget
Before you start looking for a vehicle, it’s important to set your budget first. Consider your monthly expenses, such as housing costs, utilities, food, and entertainment, and decide how much you can afford to spend on a car. You should also factor in the cost of insurance, maintenance, and fuel. If considering an EV (electric vehicle) you should familiarize yourself with potential costs associated with this, not just the savings.
Determining what you can afford will also help you with whether to look at new or used vehicles, and in the case of used vehicles just how used they might be. When looking at prices, it can help with keeping an eye on monthly payments for determining what it is that you can afford. You should try to take a payment plan with the shortest term. Taking a longer term does reduce your monthly costs, but you’ll pay more in interest overall.
By setting a budget and determining what you can afford, you can save yourself time by only looking at vehicles that fit with what you might be able to pay.
Determine Your Needs
Once you’ve set a budget, determine what you might need in a car. Consider factors such as the number of seats, cargo space, fuel efficiency, and safety features. You should also consider your lifestyle, driving habits, and what you might use it for.
Some have buyer’s remorse because their choice of vehicle might not choose their lifestyle or it turns out to be another mistake. If you like the look of a large SUV or pickup truck but didn’t consider the costs such as fuel, it can come as a surprise how often a V8 can require refilling. Or if you were looking at a high performance machine, that can also mean high maintenance, and cost you much more to keep it on the road each year, and for insurance.
It really comes down to your needs, priorities, and what you’re willing to pay for when shopping for a car, truck or SUV.
Compare Your Options
You should try to limit your comparisons to the vehicles that meet your needs and budget. Look at features, pricing, and reviews from experts and owners. You can use online resources such as the Canadian Black Book and Consumer Reports to help with your research.
After you have had a chance to research some vehicles, you should start creating your short list of possible choices that might be a potential fit. There is no right or wrong way of doing this, and it could be a doc or spreadsheet, or just write down the make and model that’s of interest.
You might start by figuring out the type of vehicle, such as a sports car, sedan, pickup, van, or sports utility vehicle (SUV) to begin. Narrowing your preference down to one of these types is a good place to start and will make your comparison that much easier. Also consider what your top 2 or 3 features of your next vehicle might be. Is it seating or cargo space, comfort, speed and performance, or something else. This will help narrow things further and help you to create a short list of vehicle candidates that might fit your requirements. Also make sure that you include affordability into the equation when trying to arrive at possible matches.
Take a Test Drive
Once you’ve narrowed down your options, test drive the cars you’re interested in. This will help you determine which cars feel the most comfortable and which have the features you’re looking for. Sometimes what you assumed would be the vehicle you might want can be a different story after you have had the chance to drive it.
A test drive might help you realize a vehicle is too small (or large) or it might be missing certain features. It might be underpowered, not handle the way you hoped, or have other issues. In some cases, you might realize that some features which are standard on some vehicles actually cost extra and no longer fit within your budgeting plans of what you can afford.
Decide on a Car
After test driving several cars at the dealership and researching what you need, it’s time to decide on the car you want to buy. Factors such as price, financing, and features are all to be considered. But before you choose what you think you want, there are a few other considerations that are also worth a mention. Do some research on maintenance costs, because this can be as expensive (or more costly) as buying the vehicle. Check the insurance rates for the vehicle that interests you too, because this is another monthly expense, and the last thing you want is a car you can’t afford. Also look into the reliability of the vehicle while doing your due diligence and comparisons to make a smart choice.
If you’re not planning on paying for the car in cash, you’ll need to get financing. You can either get financing through the dealership or through a bank or credit union. It can be a good idea to get pre-approved for a loan before you go to the dealership.
When you are at a dealership finance office, do not expect the manager to provide you the best rates. There are times where they might have incentive to push you towards financing options that are more suited to them than you. Knowing your credit score beforehand along with what you might qualify for can all be found online when checking your options.
If you have a lower credit score and it is close to a certain threshold that might allow you to be eligible for better rates, it can be well worth your while to delay your purchase and focus on improving your credit score. This can help save a significant amount of money that may go towards interest. Improving your score may also make the difference between the vehicle you qualify for and the one you settle for. Comparing your options when your only choice appears to be bad credit car loans is almost always advised before signing.
Once you’ve decided on the car and financing, negotiate the price. Do your research to find out the fair market value of the car and use this information to negotiate with the dealer. If you have a vehicle to trade in this can certainly reduce the cost of what you would be expected to pay.
While it is much easier to trade in a vehicle during the process of buying a vehicle, you will receive below market value as the dealer needs to make a profit if buying your vehicle as a trade-in. Often they will have to put money into it so that the vehicle is presentable or meets certain standards before they can sell it. You always have the option of doing a private sale, but you will have to deal with all the steps like being available to show the car, test drives and more. This stage is really a matter of personal preference, and many prefer to trade-in a vehicle to avoid dealing with the hassles of selling a car privately.
Finalize the Deal
Once you’ve agreed on a price, it’s time to finalize the deal. Read over the contract carefully before signing to make sure you understand all of the terms and conditions. You should never sign any kind of loan agreement without carefully reading over all parts of the loan contract. This is legally binding and you will be responsible for the payments outlined in the agreement. You should not only look at the interest rate, but also the annual percentage rate, or APR.
Sometimes you can discover hidden costs within an agreement that might not have been mentioned or brought up. A loan agreement that has a low interest rate but a high APR suggests there can be hidden fees.
After you’ve gotten the paperwork out of the way and signed the contract, it’s time to take delivery of your new car. Make sure you have all of the necessary paperwork and that you understand how to use all of the car’s features.
While buying a new car can be a fun and exciting experience, it’s important to do your own research and make informed decisions. Sales people at a dealership can be helpful, but you need to understand many aspects of buying a vehicle. It is not advised to take the word of many sales people since their personal interests are not shared. Not all are the same, it’s just impossible to tell who is genuine or not until it’s too late.
Following these steps can help you to find the right car at the right price and enjoy the benefits of driving a new (or new-ish) vehicle that you may have had your eye on.
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Frequently Asked Questions
You have questions, we have answers!
Even those with bad credit can get matched with a lender and are often approved for an installment loan.
The amount you can borrow will depend on things like your income, repayment terms you select, credit score and similar factors.
If you are approved for a loan most lenders may provide your funds in about 1-2 business days, with some providing same day funding.
Get a Car Loan in Canada
When you need a car loan but bad credit makes it challenging to get approved, some of the lenders that work with GoodCheddar can help. Start by self-selecting above from the choices of bad credit loans, installment loans and personal loans. These options are related to your credit score.