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How it Works when you Finance a Car in Milton

How it Works when you Finance a Car in Milton

Have you ever wondered how you would finance a car in Milton? Most people just want to know how much their monthly payment is, how long the term is, and the interest rate.


If you take a look under the hood (pun intended) of how to finance a car in Milton, you would have a tremendous amount of respect for the car dealerships that help make buying a new car so easy.


Auto loan underwriting crash course


Don’t worry, there won’t be a test at the end of this discussion. Your credit and income profile have a direct impact on whether you qualify for prime or sub-prime auto financing.


Do not take offence at these labels, it is just a classification system used by lenders when trying to put someone in a particular profile.


You could have a person who works an office job making $30k a year and qualify for prime rates and a medical doctor who just finished school who would be classified as sub-prime even though they earn over $250k a year.


The classification comes down to how you handle your finances, your credit score, and available income to repay the debt.


When a person qualifies for prime rates, then one of the major banks will usually underwrite that loan.


What the bank will do is borrow money from the Bank of Canada at prime and then add their fee on top of it. This loan is then funded and you get a new car at a very competitive rate. Since these banks can borrow at such low rates, they can still make a substantial profit without you experiencing much financial discomfort.


Where things can get complex is when a person is applying for subprime car financing.


Underwriting a subprime auto loan


The lenders who specialize in subprime auto loans have a greater risk of default and a smaller market of potential customers to choose from. Since the big banks can underwrite a large number of Milton auto loans, they benefit from an economy of scale that subprime lenders cannot compete with.


To offset the risk, these lenders need to charge a higher interest rate. These higher rates are influenced by the private markets.


Lenders need to get capital from private individuals and firms like hedge funds who are willing to lend the money only if the rate of return is higher.


The motto high risk/high reward comes to mind


Since these interest rates do vary, you have to work with a dealership that has experience serving clients with credit issues.


While the high interest rates may seem unfair, you can easily refinance the car loan in a year when your credit score is higher.


Now that you have a better understanding of how car loans are funded and how important having a good credit score is, you should contact your local dealership and meet up with them.


You can fill out an application to determine what is the maximum budget you qualify for and then go for a test drive. The dealership is going to provide you with some practical advice on how you can boost your credit score but you need to follow through and implement the advice.


We will use all our skill and experience to deliver the lowest possible Milton auto loan rates, guaranteed. Contact Car Nation Canada Direct to learn how we can help.


For any questions or concerns, please don't hesitate to contact us here!


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Categories: Auto Loan

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