Buying car is a dream that nearly everyone has. But a lack of funds is a major hurdle.
Many car dealerships have promotions for those with little or no financial support. So even those with little or no credit can easily apply for car loans. However, careful research is needed to ensure so that loan terms are affordable.
Here are steps to follow, so that even buyers with low credit scores can get loans without breaking the bank.
Identify the Score
This is the first step for prospective vehicle buyers who are worried that their score is too low to qualify for a car loan. It is very important that buyers know what their scores are before applying for a car loan. Buyers can easily access their credit reports free of charge at the two credit reporting agencies in Canada, TransUnion and Equifax.
Usually, a score of 650 and above is considered a good credit risk but below 650 these buyers are considered as subprime candidates. This means that this group of buyers will pay higher interest rates.
Determine the Down Payment
You can get a lower interest rate even with having bad credit by putting down some cash. Roughly 10% down payment is sufficient despite a score below 650.
A co-signer is another option for financing. The Cosigner will also need to submit to a credit check as they are a guarantor of the loan. This means that if you do not make the payments on the loan the co-signer will be responsible to make the payments.
Subprime consumers sometimes are expected to pay a higher interest rate as compared to those who have better credit. For example, some subprime buyers may have to pay 10 percent interest whereas good credit score holders may pay 4 percent. Before applying for a vehicle loan Canada the buyer should be aware of the interest rates. It pays to shop around and check different offers.
Potential buyers should do their calculations. While shopping around they should know the expected interest rates. Proper calculations will ensure that consumer is aware of the targeted purchase price, which is the total amount that one is required to pay instead of the monthly payments that one can pay.
Getting into longer loan terms with fixed monthly payments is not a beneficial financial strategy when in regards to a car loan in Canada.
Proper Credentials, Documents and Relevant Papers
Despite having a poor credit score, one of the better approaches to a car loan is to prove that you can meet the payments by proving your credit worthiness using various other methods.
While opting for loan, buyers must bring copies of their current pay stubs. Consumers should also bring all those utility bills and other documents which will prove their ability to pay back the loan within the deadline.
Vehicle loans for those with poor credit are not that rare. And a low score does not mean the consumer has to take the first offer.
Preparation and research is a must as it may help the consumer to qualify for interest rates with more favorable terms.