Financing a Used Car in Canada

Financing a brand new car in Canada is not as easy for everyone as it might seem – simply, not everyone can afford it. That is why a big chunk of car buyers tends to turn towards the dealerships that sell used cars. One of the reasons is that buying a used car gives you a means of transportation from point A to point B, but also gives you fewer things to worry about than with buying a new car – the wear and tear, the cost of certain parts, the (un)intentional scratching… And while you need less money to buy a used car than a new one, if you need financing to do it, that usually means the car is relatively new – only a few years old and has relatively low mileage. So, stick with us to find out what the financing options for buying a used car in Canada are these days.

There are two ways you can secure a loan to buy a used car in Canada:

1. Through a bank
2. Through a dealership.

Each of the options has its own pros and cons, and there are multiple factors that determine which one is right for you. Your credit score is one of them and, especially when dealing with a bank, the health of your credit will be the deciding point in whether or not you actually get to buy a used car or not. On the other hand, the interest rates an institution offers will probably attract you or push you away from making a deal with a bank or a dealership. That is why it is of the utmost importance to do as much research as possible beforehand because every bank and dealership offer different interest rates for every year, make and model of a vehicle they have available.

Moreover, there are two general types of interest rates a bank or a dealership can offer you – “fixed” and “variable”:

1. Fixed interest rate – the amount of money you pay every month remains the same regardless of how much time it takes you to pay off the full loan
2. Variable interest rate – the amount of money you pay monthly depends on the market, so when the market interest rate shifts, so does your own.

Have in mind that banks and dealerships are businesses, so no matter how much they sugar coat things, they mean to make money from the deal they make with you. Don’t allow an appealing interest rate to blind you from getting full honesty out of the person representing the institution in question and choosing the right option for you.

Financing through a bank

If you are going for the first option – financing a used car loan through a bank – the first one you go to may be your own, but don’t stop there. Make some inquiries and find out what else is being offered out there – what your options would be in other banks – before making a final decision. Just because you are already doing business with one bank, that doesn’t mean you cannot get better conditions for financing buying a car at a separate bank or credit union.

Nevertheless, here are the PROS of financing a used car through a bank:

1. Choosing your own bank – where you’ve been for a certain amount of years already – means that you’ve established a good relationship with them and that you can go anytime during business hours, sit down with your financial advisor and get better advice on your financing options than anywhere else.1)  Choosing your own bank – where you’ve been for a certain amount of years already – means that you’ve established a good relationship with them and that you can go anytime during business hours, sit down with your financial advisor and get better advice on your financing options than anywhere else.
2. A bank where you already have an account will most likely be open to negotiating the terms of your payment period. To keep you as a client, they may allow you to extend the term of your loan if your financial situation has gone a turn for the worse, or let you accelerate your payments or increase your rate amount so that you can pay the loan off faster.
3. Your bank may also be lenient on you if you happen to miss a payment or two, especially if you have a good record with them otherwise – they will most likely charge you a penalty fee and not immediately send a debt collector after you. However, this shouldn’t be a reason for you to start skipping payments, as that can damage your credit score and both your bank and dealership may decide to seize the car if you delay for too long.

On the other hand, there are also CONS of financing a car loan through a bank:

1. Banks are more hesitant to finance you buying a used car than a new one because of their depreciation in value.
2. Banks’ stricter regulations require you to have a favorable credit score in order to grant a credit loan, so if you have bad credit, you are more likely to get financing from a dealership. Also, banks rarely change their interest rates to accommodate your financial situation – what you see is what you get.
3. With a bank, you usually won’t get your loan right away regardless of you good your credit score is. Dealership financing, however, allows you to get a loan, buy the car you wanted and drive it off the lot all in the same day.

Financing through a dealership

Financing through a dealership may prove to be a better option for you if you are in a time crunch or have less than desirable credit score. You can walk in, check out the cars, take a test drive, sign a contract and get the key to your car that same day. Just make sure you have taken a look at the options and found what is best for your finances.

Here are the PROS of financing a used car through a dealership:

1. In-house dealership financing saves you time as the application and approval process is shorter and practically allows you to find your car and buy it almost immediately.
2. Dealerships are less apprehensive than banks towards approving a car loan to you should you have bad credit.
3. While they may not necessarily offer better interest rates than banks, dealerships may be open to negotiations in order to close the deal or throw in a bonus like a longer warranty or other upgrades.

On the other hand, there are also CONS to financing a car through dealerships:

1. Dealerships are less likely to tolerate deviating from the agreed payment plan – no accelerated payments, no lump sums, and definitely no missed payments.
2. If you have bad credit score, the dealership representative may not give you a better interest rate than a bank or you may end up paying double the value of the car once you’ve finished with payments.

So, which of the two options is better – financing through a bank or a dealership?

As both of them have their positive and negative sides, it all really comes down to you and your financial situation. If you have favorable credit and solid income, your bank will give you a good deal. But if your credit is bad, you will have an easier time securing car financing through a dealership. Then again, whatever is presented as a “good deal” may just be convincing tactics by the most charming salesperson.

Buying a car is a big investment for any person, so you should take your time, find the right car for you and decide how much you are willing to pay for it. Make sure you look at the situation from all angles, read the fine print on any contract you are considering signing, and decide if you are financially capable of shouldering the burden.

Here at CRS Automotive, we take care of our customers’ needs and preferences both when they are just considering buying a vehicle and afterward when they become proud owners of their new used cars. Come to our Cambridge, ON used car dealership and see for yourself the vehicles in our sale line and the financing options we have to offer. You won’t regret it!