10 Common Misconceptions About Car Loans
Many people shy away from taking out any type of loan, especially a car loan.
Car loans have a bad wrap in many people’s minds as a financial trap, one designed only to lure in people who cannot afford their cars in the first place and who will struggle to ever pay it back.
In many ways this is an undeserved reputation, as car loans have the amazing potential to get you into the car you want now and still be a financially responsible decision.
Here we break down 10 common misconceptions people have about car loans and why they are incorrect.
You Can’t Get Approved for a Car Loan without Credit History or Credit Score
Probably one of the biggest misunderstandings about car loans is the idea that you need to have an established credit score to take out a car loan.
Many recent immigrants to Canada will not have any previous credit history, nor will younger Canadians just starting out getting their first cars or credit cards.
Taking out a car loan is actually a great way to start building your credit history! The right car loan with the right lender, coupled with regular repayments, can boost your score dramatically if you do not have any previous credit relationships.
A car loan is a long term financial relationship, and through making regular on time payments, can provide you with the positive credit history many lenders will look for when applying for different types of credit like a mortgage or credit card.
You Need a Large Income to Take Out a Car Loan
This idea is misleading and completely relative to the value of the car you wish to buy, your down payment, and what your own personal financial circumstances are.
Many car loans can be made to work with almost any income level, it will just depend on the type of car you will be able to purchase and how long the term of your loan will be. Obviously a luxury car with a shorter loan term will be much more expensive than an entry level car over a longer loan period.
Whilst you do not need to be making a six figure salary, it is important you speak with your loan provider honestly about your finances and what you could realistically afford on an ongoing basis so that you do not end up in a budget crunch every month.
You Need a Large Down Payment
Much like the previous misconception, this one is also entirely dependent on your own circumstances.
Almost no car loans explicitly require a large down payment, or for that matter, any down payment at all. There are plenty of $0 up front car loans available, you just need to ask your loan provider.
Something to be aware of is that not putting any money down initially will inevitably lead to you paying more in interest over the life of the loan, as your principal loan amount will be higher than if you had put in a down payment. This could actually make the most sense for you presently, as you might not have the money for a down payment but need to get on the road as soon as possible and feel comfortable paying more over the longer term as a trade off.
You Can Only Get a Good Interest Rate on a Car Loan if you Have a High Credit Score
This is one of the big ones as well – the idea you will only get a terrible interest rate if your credit score isn’t as good as it could be.
Whilst some car loan providers might increase your interest rate significantly if your credit score is on the lower end, there are lenders that specialize in subprime credit score car loans who do not penalize you for your credit history.
Autoloan.ca is the leading provider of bad credit car loans in Ontario and offers the lowest interest rates possible on a huge range of cars. We only negotiate with the top banks and credit unions when looking to get your application approved, and we don’t take ‘No’ for an answer. We fight hard to get you the best interest rates that are comparable to some good credit car loans, and give you the tools you need to help rebuild your credit for the future.
You Need a Cosigner if you Have Poor Credit
Some people may have heard of the requirement to have someone cosign a loan if your credit score is below a certain threshold.
Whilst this may be true for some types of loans, such as mortgages, it most certainly isn’t the case for car loans. Bad credit car loans do not require a cosigner, as they are specialized for people with lower credit scores.
Having a cosigner is also an additional headache that you do not need when applying for a car loan. It can mean straining a personal relationship by involving finances, and it takes away some of the independence granted by having your own car.
You Can’t (or Shouldn’t) Get a Car Loan on a Used Car
Many people have the idea that a car loan is exclusively for buying a brand new car from the dealership.
What many people do not know is that you can get a car loan for any type of vehicle, new or used! In fact, getting a car loan on a used car is in many ways a better idea than taking one out for a new car.
A used car loan will likely have lower repayments due to the lower overall cost of the car, the interest rates could be better to be more competitive with other car loan providers, and the loan will be faster to pay off! A win-win situation!
You Must Settle for the Worst Car on the Lot “to Build your Credit”
This is absolutely not true – you can get whatever car you want and they will all help build your credit with the right car loan!
Simply having a car loan and making regular, on time repayments is enough to help build your credit. Future lenders just want to see that you have been trusted with credit in the past and that you were able to service that loan in a timely fashion.
It doesn’t matter what kind of car you get on your car loan for credit building purposes, so you certainly shouldn’t settle for the “worst” one on the lot. You should pick the car that meets your personal needs, fits within your budget, and one you would be happy to own for at least the next several years.
You Can’t get Approved if you’re Turned Down Somewhere Else
It is a commonly held belief that if you get rejected for a loan from one lender, you will be rejected for a loan from every other vendor you apply to as they are all working from the same spreadsheet.
Certainly past rejections can come into play when applying for credit cards or mortgages, but this isn’t necessarily true for car loans.
Autoloan.ca takes on any applicant for a car loan, regardless of previously denied applications they might have. We work with you to secure a loan that meets your needs and we offer a range of over 7,000 vehicles that we will deliver directly to you, free of charge!
It is certainly not a hopeless case if you get rejected from one car loan provider. Keep searching, or reach out to us today, and you’ll be on the road in no time.
Take a Loan Through the Car Dealer to Avoid Rejection Due to a Low Credit Score
Tying into the same fears raised by the previous misconception, many people also think that they need to take out their loans through the car dealership to have the best chances of being approved and avoid the dreaded rejection.
In reality, car dealerships can actually have some of the worst interest rates in the business, and their high pressure sales tactics can often lead to you signing up for a loan that you are not entirely comfortable with.
As we have already clarified above, being rejected from one place is not a death sentence when it comes to applying for car loans. You just need to look in the right places.
Refinancing My Car Loan isn’t Worthwhile
Once you have secured your car loan and have been paying it off for a while, it can seem like a huge waste of time to refinance your loan.
What many people don’t know is that refinancing can save you thousands of dollars and months off your current loan if you do your research.
You need to be aware of all the terms of your current loan and any potential new loan, such as whether the new loan would add any time to your current loan, if there are any early exit fees, if the interest rate is sufficiently lower on the new loan, and so on. You might see a new loan that has a lower interest rate but adds an additional 12 months to your loan, and when you crunch the numbers you might actually be worse off!
Are you looking for a car loan but your credit has suffered from past mistakes? Contact Autoloan.ca today and get a car you love at the best interest rate guaranteed!