What determines the cost of your car loan in Canada and what can you do about it

When you buy a car in Canada, it’s important to know what the cost of the car loan is going to be. There are a lot of factors that go into the cost. Knowing how you can alter those factors can be advantageous to get the best possible deal.

Know the Factors

A variety of factors will be used to determine the cost of your car loan. While you may not be able to do anything about the interest rate that a lender will give you, there are plenty of other things that you can control.

The first thing to look at is the cost of the car itself. Over the past few years, new car prices have skyrocketed. You will want to be cost-conscious of what vehicle you get. If there is the opportunity to take advantage of rebates and incentives at the dealership, you should do so.

Different lenders will provide you with different interest rates and terms. Buying new versus used will impact these terms. For example, short term loans are more commonly offered with used cars, though the APR is going to be higher. Knowing the pros and cons of each will allow you to decide whether you want to buy a new car versus a used one.

You also need to know what your credit score is. When you have a better credit score, more lenders are willing to work with you. This is because you have proven that you are financially stable. More lenders will be ready to take a risk by offering you a higher car loan and reward you with a lower interest rate. If you have a low credit score, certain lenders may not be available to you. Additionally, you may have to pay a higher interest rate as a penalty.

Improve Your Credit Score

Particularly if you have a low credit score, you will want to do everything you can in order to improve your credit score prior to applying for a car loan. There are a number of ways to make some improvements in the span of 3 to 6 months.

Be sure not to make any new applications. Filling out credit card applications can drag your credit score down because it makes you look desperate for credit.

Pay off any small balances and close the accounts so that you don’t have too many open.

Also, be sure that you make all payments on time so that you can show your creditworthiness.

Compare Rates

Now that you know what goes into a car loan, you can choose to compare rates so that you know whether you’re getting a good deal or not. If you take the first loan available to you, it may not be the best loan terms. By using a site to apply for a car loan, you can see how different interest rates will affect your monthly payment.

Knowledge is power when it comes to getting a car loan in Canada. Knowing what goes into your car loan will allow you to make adjustments in order to get better terms.