What to Consider When Financing a Car
If you struggle to make a decision on if you should finance a car, you’re not alone. While financing a car is a great way to get behind the wheel of a car quickly, there are a few potential disadvantages. However, if you finance correctly, you can avoid all of the negative consequences of car financing. Let’s be honest, not many people are in a financial position to pay for a car in full without ever needing a loan. Anyone who has that option would rightfully take it in order to save money on interest. One of the biggest misconceptions about car financing is that you need good credit in order to qualify. Every day, Canadians will all types of credit are approved for financing, so don’t let bad credit stop you from applying for a car loan! In this article, we’re going to talk about how to approach financing correctly so you can get a car you love at a price you can afford.
Pro #1: You Can Afford to Buy a Car
The first pro of car financing is that it allows you to be able to afford a car. As discussed earlier, not many people can afford to pay for a car in full upfront, so financing allows you to pay for your car over a few years. The only car you’d likely be able to afford without financing is a cheap and probably beaten-up vehicle.
Con #1: You Have Monthly Payments
Nothing in life is free and this certainly applies to buying a car. If you get car financing, you’re going to have to make monthly payments to the lender. As long as you’ve budgeted correctly, this should be maintainable and not putting you in a tough spot financially. A car loan calculator is a great tool to use before buying a car to understand what makes up your monthly payments and an estimate of what you’ll be able to afford.
Pro #2: Car Financing Can Improve Your Credit
If you’re able to consistently make your payments on time and in full, your credit score will increase. Whether you have bad credit and are looking to rebuild or have good credit and want to make it great credit, car loans are a great way to improve your credit.
Con #2: Interest Rates Can Be Expensive
While the interest rate you qualify for is completely dependent on your credit score, interest can get expensive. The lower your credit score, the higher your interest will be to make up for the risk you pose as a borrower to the lender. If you have a high credit score, you should qualify for a lower interest rate. Simply put, interest is the cost of borrowing and while it is technically a con, it is usually well worth it.
Pro #3: You Own the Car at the End of the Loan Term
One of the biggest pros of financing a car is the fact that once you’ve made all your payments to the lender, the car is now owned by you. At this point, you can either decide to trade it in for a newer vehicle or drive the car until it’s dead.
Con #3: Down Payment is Often Necessary
The last con to financing a car is that typically you’ll be required to make a down payment on the vehicle your financing. While this is usually recommended anyway, nobody wants to pay 10-20% of a vehicle’s overall sticker price. This shouldn’t be a huge con for a serious buyer as down payments are an important part of financing a car.
Pro #4: You Can Get a Car You REALLY Want
The last pro of car financing is it’s a great way to be able to afford a car you really want. This is largely due to the fact that if you have decent credit, dealerships and lenders will be able to figure out a financing option for you regardless of the vehicle price, as long as it’s within reason.
Ready to Buy a Car?
If you’re ready to finance a car, there’s no better place to start than here at Car Loans Canada! Fill out our short application and we’ll get you connected with one of our many accredited dealers across Canada within 24 hours!