Financing a used car in Canada can be a great option for anyone looking for an affordable way to buy their next vehicle. According to the Canadian Bankers Association, nearly three-quarters of all new and used vehicles purchased in Canada are financed through some form of loan or lease agreement. While financing a used car has its advantages, it is important to plan and budget carefully before signing any loan agreement.
Why purchase a Used Car?
- Lower Cost: The main reason why people opt for used cars over new is that they offer a much lower cost than buying brand new, making them a great option for those who are trying to save money.
- Less Depreciation: With a used car you don’t have to worry about the vehicle depreciating in value as much as it would with a new car.
- Lower Insurance: Insurance premiums for used cars tend to be lower than those for new cars, making them more affordable to insure.
- Variety of Options: When buying a used car, you have a much wider range of options available to you and can find the perfect car for you.
- Environmentally Friendly: Buying a used car is a great way to reduce your carbon footprint as it reduces the number of new materials that need to be produced or mined in order to manufacture a new vehicle. Plus, most used cars have already been broken in so they are more fuel-efficient than brand new vehicles
How to Finance a Used Car?
When financing a used car, there are several options available. You can finance through banks, dealerships or lending companies.
- Banks: Most banks offer auto loans that you can use to purchase a used vehicle. The interest rate and repayment terms will vary depending on your credit score and the amount of money you borrow.
- Dealerships: Many dealerships offer financing options through their own financing companies or in-house lenders. These loans may have lower interest rates and more flexible repayment terms than traditional bank loans.
- Lending Companies: There are also a number of private lending companies that specialise in auto loans for used cars. These lenders may offer higher interest rates but may be more willing to work with customers who have less-than-ideal credit.
No matter which option you choose, it is important to compare all of your options before making a decision. This will help ensure that you get the best deal and can make an informed decision on financing your used car.
What are the Pros and Cons of financing a Used Car?
Pros of a used car
- Lower Cost: The main reason why people opt for used cars over new ones is that they offer a much lower cost than buying brand new ones, making them a great option for those who are trying to save money.
- Increased Selection: There are usually many more used cars available than new ones, giving you more choices.
- Potentially lower Insurance Premiums: Used cars tend to be cheaper to insure, as the cost of repairs and replacement parts are often less expensive than for new cars.
- Reasonable Repayment Terms: Financing a used car can offer more flexible repayment terms than financing a new car, allowing you to get the car you need.
Cons of a used car
- Potentially Higher Interest Rates: While interest rates on used cars tend to be lower than those for new cars, they can still be higher depending on your credit score and other factors.
- More Wear and Tear: Used cars may have more wear and tear than new cars, meaning you may have to pay for repairs or replacements sooner than with a brand-new car.
- Higher Risk of Repo: If you fail to make payments on your loan, the lender is more likely to repossess a used car than they are a new one.
How to apply for a Used Car Loan?
- Gather Documents: Before you start the loan application process, make sure that you have all of your necessary documents in order. This includes pay stubs, tax returns, bank statements and other documents demonstrating your financial stability.
- Research Lenders: Once you have gathered all of the necessary documents, it is important to research potential lenders to find the best deal for you. Compare interest rates and repayment terms from different banks, dealerships and private lenders in order to get the best deal.
- Fill Out an Application: After selecting a lender, it’s time to fill out an application. This can usually be done online or in-person at the lender’s office. Be sure to answer all questions honestly and accurately, as this will have a direct impact on the terms of your loan.
- Submit Documents: Once you submit the application, you may need to submit additional documents or proof of income in order for your application to be processed.
- Review Terms: Once your application is approved, you will be given a loan agreement with the terms and conditions of your loan. Read through this carefully and ask questions if anything is unclear before signing.
- Make Payments: Now that you have signed the loan agreement, it’s time to make payments on your car loan. Be sure to make all payments on time in order to avoid late fees and other penalties.
What Is a Good Interest Rate for a Used Car?
The best interest rate for a used car loan will depend on various factors such as your credit score, the amount of money you are borrowing and the age of the car. Generally speaking, a good interest rate for a car loan would be 5-6%.
For example, if you were to borrow $20,000 at 6.99% interest over 5 years, your monthly payment would be $395.93. This means that you would have paid a total of $23,755.80 over the course of the loan including interest and principal.
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Are You Ready To Get A Used Car Loan?
Buying a used car can be an excellent way to save money and get the car you need without having to break the bank. With increased selection, potentially lower insurance premiums and reasonable repayment terms, taking out a loan for a used car can be an affordable option. It is important to do your research when looking for lenders and to make sure you understand the terms and conditions of the loan agreement before signing. With a little bit of research and preparation, getting a used car loan can be an easy and stress-free process.