How to Find a Low Interest Car Loan
How to Find a Low Interest Car Loan
Posted on March 21, 2023
The auto financing sector is very competitive, with interest rates at all-time lows. Finding a low-interest car loan has never been easier.
Our goal is to provide you with a better understanding of how the auto financing industry works in Canada, and how you can leverage that knowledge to save money.
New or Used Car?
The first thing we should discuss is whether you are buying a new or used car. Used cars traditionally have a higher interest rate when compared to new car financing. Many variables influence used car loans, but we won’t go too deep into those variables.
Whether you choose a new or used car, lenders have become more careful when underwriting new loans, so you have to understand what the lenders want.
The first thing that prospective lenders want is a credit score over 680. Before the pandemic, you could get a competitive interest rate with a 650 but that is no longer the case.
If your score falls under 680 you will need to work on getting the score up and doing it fast. Click here for a quick guide.
Another thing that lenders will look at when making the determination on whether to approve a car loan is your debt-to-income ratio.
This is a ratio that takes all of your debts and compares them to your total income. If you are currently spending more than 40% of your income on debts, it does not leave enough room in your budget to take on a car loan.
This is great news if you have credit issues but a good income, it gives you the ability to qualify for a larger loan.
Car Loans From a Bank
In the past, when you wanted to buy a car, you would either save up the cash (no one can do that these days with the average cost of a new car over $40,000), or you went to your local bank and took out a car loan.
Your local bank may be able to offer you a car loan, but the odds of you getting a great deal are slim to none. These banks have overheads and costs that must be recouped by charging you a higher interest rate. Banks are great for financial services but when it comes to finding a low-interest car loan, we are going to show you a better way.
Assessing Your Financial Situation
Before we can show you how to access the best interest rates in Canada, you need to review your current financial situation to see if you meet the qualifying criteria.
If you are working a conventional job, you should have been in that role for at least 90 days and ideally more than a year. With the Great Resignation, there is a significant portion of the Canadian workforce that is changing jobs, and lenders are taking that into consideration based on the type of work you are doing.
Individuals who are self-employed will need to show 2 years of activity. The way you can prove that is by showing your income tax and bank account statements for the last 1-2 years.
Having a Suitable Credit Score
Without a stable source of income, you may not get a low-interest car loan but income is just one part of the equation. Your credit score determines whether you are classified as “prime” or “subprime”. These classifications do not mean you are not a good person, it just indicates whether you pose a greater risk of defaulting on a loan.
We are living in a digital age where identity theft is a real problem, even if you have great credit, you should always monitor your credit to make sure there are no mistakes or unauthorized accounts opened in your name! The current credit score needed for prime interest rates is 680+, so aim for 700 or higher.
If your credit score falls below 680, you are not sub-prime but you are going to pay a higher interest rate, so do everything in your power to get your score over the 680 mark.
Head to a Dealership
One way to get excellent credit advice and access to the most competitive car loans is by going through a local car dealership, the dealership is able to give you expert advice to help improve your credit score and can get you the most competitive interest rates in all of Canada.
This is by far the best-kept secret when it comes to getting the lowest interest rate car loans in Canada, going through a local car dealership.
If you're ready for a car loan in Southern Ontario, we'd love to help with that! simply fill in the form below to get started.