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OMVIC Blog: Car Buying Tips

Considerations, Questions and Tips When Arranging Auto Financing

Jun 27

Thursday, June 27, 2019

The majority of consumers borrow money for a vehicle purchase. Some choose to use a personal line of credit or arrange financing at their bank or credit union, but many have the dealer arrange the financing. This often makes sense—dealers have access to numerous lenders that may provide terms or rates unavailable elsewhere. But this doesn’t mean consumers shouldn’t carefully consider what is being offered and take steps to ensure they are getting the best possible finance rate and terms.

Understanding Your Creditworthiness

The terms and rates available to a vehicle-buyer will be based largely on the vehicle being purchased and the buyer’s creditworthiness (credit score). Individuals with a good credit score are typically offered, or can negotiate, the best rate/terms available. Before applying for a loan, consumers should learn their credit score by contacting a credit bureau.

Two commonly used credit bureaus in Canada are:

Compare Lenders

Consumers should contact their financial institution and inquire about the terms and interest rates it can offer then compare this to the financing available at the dealership.

Are All Credit Offers the Same?

If the dealer is arranging financing, he/she may submit the consumer’s loan application to one or more financial institution or lender; therefore, a consumer could be approved by multiple lenders, potentially on different terms or at different interest rates. Consumers should ensure they know who their application was submitted to. If the application was submitted to multiple lenders, consumers should enquire about each lender’s offered terms/rate. Important note: multiple credit applications can negatively affect a borrower’s credit score. Dealers are sometimes paid a fee by lenders for arranging financing, so consumers should check they are getting the best financing rate and terms possible, not necessarily the rate/terms that provides the dealer with the most lucrative fee.

Verify Credit Applications

Credit applications completed at dealerships must be accurate. Inflating incomes or minimizing debts to try and get an application is approved is not only unethical, it is illegal. Consumers should ask to carefully review the information on the application before allowing the dealer to submit it.Consumers should also request a copy of the loan application.

Shop for a Car, Not a Car Payment

Many consumers mistakenly shop for a vehicle based on a low monthly payment rather than the actual price. Often referred to as monthly payment junkies, some of these consumers find themselves financing a vehicle over extended terms (84-96-108 months), which could result in owing more for a vehicle than it is worth. To learn more, watch the OMVIC Academy’s Video 2- Negative Equity.

Before considering an extended-term car-loan consult the graphic below for questions to ask yourself.

Loan Agreements/Contracts

Consumers should carefully read the entire agreement and ensure the stated terms and rate on the contract match what was promised. If a dealer or salesperson makes a verbal promise (e.g. if all payments are made for the first 12 months the loan term/rate can be renegotiated), GET IT IN WRITNG! This provides transparency and protection.