Woah! You’ve finally decided to start looking at buying a car, you’ve got your sights set on the one of your dreams, and the only thing standing in your way is qualifying for that vehicle loan. We can empathize that this can seem like a daunting and frightening idea. Taking out tens of thousands of dollars can be both stressful and exhilarating. Making the right decisions when it comes to interest rate, lender and dealership all add up. But we’re here to make this process much easier on you. Let’s talk a bit about how to qualify for a car loan in Canada.
Before You Apply for a car loan…
Before you even start thinking about getting a car loan, you have to check out some things. Think about your current situation, if it’s a good time for you to buy, and think about relationships you have with financial institutions.
Figuring out how much you can afford to spend monthly on a vehicle rests on a few thigns. First off, look at your income, and your spouse’s income if you have one. In general, you want to spend a maximum of 10-15% on your vehicle, with maintenance and insurance factored in.
But this percentage lowers depending on how much you are paying monthly with your other expenses such as a mortgage, rent payments, loan payments and credit card repayment. In some cases, you may be able to afford more, but this really should be avoided, and some financial experts actually halve the estimate to 10% of your regular income.
And Check Your Credit
It’s true that more than half of Canadians have no idea what their credit score is. That’s millions of borrowing Canadians who don’t know enough about their financial stability, which certainly factors into how to qualify for a car loan in Canada.
Soft credit checks, like verifying your own credit, won’t decrease your credit. However, hard credit checks, like the ones loaners do when you are applying for credit, will affect your credit score if you do it too often. 10% of your credit score is made up of inquiries, so it’s best to keep hard checks to, perhaps, one a year.
Other aspects of your credit score are payment history, amounts owed, length of credit history, new credit and types of credit. It’s important to know your score before you decide to finance a vehicle. A good Canadian credit score is over 680! Anything under 600, and you’re in the risky category, but that doesn’t necessarily have to discourage you. You can still often find a bad-credit car loan! Just know that with these you’ll have higher interest rates, but give it some time and you can refinance, since financing a vehicle is a great way to rebuild credit!
Who do you finance with?
The first thing to do is to look at your financial relationships. Have you always done your finances through one financial institution who would be more likely to give you a great deal? If so, by all means, talk to them first. But then be sure to come see us at Go Auto Outlet because we’ll quite likely be able to negotiate an even better deal with you.
There are a few things you should bring with you:
- Proof of income
- Credit and banking history
- Proof of residence
- Vehicle information
- Insurance Information
What to Ask
These are some financially important questions to be asking when you consider how to qualify for a car loan in Canada. Situations change, so you’ll want to know how much, when and how long you’ll be paying.
- Can I see the calculations you’ve come up with?
- Is there any penalty for paying more early?
- What will my interest rate be?
- Can you tell me how this is within my budget?
Apply for Pre-Approval
The next step is to apply for pre-approval or approval. With the car financing process, there are three stages: pre-qualification, pre-approval and approval. Starting with the first of these steps can let you find out what kind of situation you’re in and whether you may get pre-approved.
Applying for pre-approval with Go Auto Outlet is actually pretty simple and often only involves a few pages of details! So, after you’ve figured out your credit, thought about types of financing, and touched base with your bank, this is your next step to getting a car loan. After that, it’s all about actually getting approved, which is fun! We hope we’ve helped you answer the question of how to qualify for a car loan in Canada. Feel free to reach out to us should you have any questions about financing.