Laneway

Not everyone dreams of a brand-new car. Many drivers prefer to buy relatively new second-hand models at lower prices and with easier consumer financing. As a useful costly option between under-warranty new and buyer-risk second-hand cars, some dealerships offer certified pre-owned vehicles.

Typically less than five years old and with 800,000 kms on the odometer, these smart buys are often trade-ins from lease customers upgrading to a new model. This is a great choice for anyone wanting all the advantages of a used-car, without too many of the drawbacks.

Used Car Financing Options

Generally speaking, there are two ways for Canadians to finance better-quality used cars with less than 80,000 kilometres on the clock, and under ten years old. The easiest way is through the car dealership, or else through a bank, particularly for account-holders.

Either way, auto financing approval depends heavily on your credit history. However, auto financing is basically available to almost everyone, with low credit scores offset by higher interest rates on sub-prime loans.

Always Check Interest Rates on Auto Loans

Can I afford it? That’s the first question asked by all prospective car buyers. Affordability is a key factor, regardless of whether the car is new or used. This is where interest rates make all the difference, as rates can add thousands to the bottom line when looking at auto financing.

That’s why research is vital, because every dealership and financial institution offers different rates for every make, year and model on the market. No matter how tempting it may be, buying a vehicle without asking all the right questions could undermine your financial stability for many years.

What Kind of Vehicle Financing Is Better?

Each kind of auto loan offers its own benefits. Here’s a quick overview of the pros and cons.

Car Financing through a Bank

Advantages: if you have had an account there for several years, you know the manager, and you could get more impartial advice than a car salesperson might offer. If you skip a payment or two, your bank will probably charge you a penalty fee, but is unlikely to repossess your asset unless you default for too long. If tough times strike, you have a better chance of renegotiating your loan, as the bank will want to keep you as a client.

Disadvantages: auto loans are harder to obtain from banks, because of strict rules and regulations, particularly credit scores. This rigidity also offers little for negotiating lower interest rates, with approval processes often lasting several days, and even longer for used cars, which are even harder to finance through banks, perhaps because of depreciation.

Car Financing through a Dealership

Advantages: streamlined deals that allow you to choose your car, sign the paperwork and drive it off the lot the same day. Car dealerships must sell their goods in order to survive, which means they could be willing to negotiate a lower interest rate, in order to close a deal. With a little pushing, they might even add a few bonuses to sweeten the deal, such as a longer warranty. Eager to turn over their inventory, dealerships are often quite comfortable financing cars for bad-credit drivers, although interest rates might not be so negotiable.

Disadvantages: once you sign off on the deal, that repayment schedule is set in stone, accepting no missed or accelerated payments. Interest rates may be higher than banks, particularly as many require a hefty down payment to seal the deal. With everything added up over time, some unwary buyers could end up by paying close to double the actual value of the car.