For most people, buying a car will be the biggest expense of the year unless they are buying a house. Whether you buy a new or used car, you are going to have to come up with a significant amount of money. This often means squeezing an already tight budget. Since new cars come at a premium, most folks are going to buy used. If you are like most drivers, then you need to consider used car financing when buying your next vehicle.
In general, there are some lease programs for used cars, but they are difficult to get and may not fit into your budget or financial lifestyle. So, the reality is that financing your next used car purchase involves taking out a loan. Finding the right loan is key since you want to make sure that the car you are buying doesn’t end up putting you into a financial hole or burying you deeper into one you are presently in. The good news is that you can get a used car loan even if you have poor credit. In fact, getting a used car loan can be the first step in rebuilding your credit history. You just have to make sure that you stay current on all your lease payments.
Your Credit and You
As with any loan, the terms and conditions of your used car loan will depend on your credit rating. Also, your credit history will have an impact on how much you can borrow. If you don’t already know your credit score, you can visit Equifax Canada or TransUnion Canada, two of the agencies that rate credit for all Canadian drivers like you. The scores range from 300 to 900, with the higher number signifying a better credit rating. If you have a credit score of 760 or higher, then congratulations, you have an excellent credit rating. Most folks find themselves with a score between 660 and 724, which means they have good credit. If you have a score below 660, don’t fret. It doesn’t mean you can’t get a used car loan. It only means that you may not get the best terms and conditions.
Everything you do with your finances affects your credit rating. If you bounce a check or are late on a credit card payment, your credit rating will decrease. Your credit rating will take a major hit if you file for personal bankruptcy or end up on the losing end of a civil lawsuit. By the same token, if you start to pay your bills on time, you will start to see your credit rating going up. This is the reward for working hard and being conscientious.
Used Car Financing With Good Credit
If you have a rating of 660 or better, then you should have no problem getting a used car loan on very competitive terms. This is because banks will be competing for your business. They see you as a good or even great credit risk and so are willing to extend credit to you. This is why you probably get so much unsolicited mail from banks and credit card companies offering to do business with you. This is because these financial companies make their money by extending credit and getting it paid back with interest. Since they see you as a good credit risk, they will be more than happy to help you finance your next used car purchase.
When you are someone with good credit, you should find out how much the banks and other financing companies are willing to lend you so you have an idea about how much you can spend on your next used car. This will involve getting pre-qualified for a loan. You can do this in minutes through an online portal on the website of the used car dealer where you plan to shop. With just a few pieces of financial information, you can find out your budget.
One thing you should keep in mind is that not all used car loans are the same. Some have higher interest rates, and others have shorter loan terms. You are going to want to find one with the lowest interest rate and the most amount of available credit you can spend. This is the sweet spot for any used car loan for someone with good credit. In addition, you should find out if you have the right to refinance. Interest rates are always changing, and a good interest rate today might not be so good tomorrow if the banks lower rates. This is why you should try to make sure this option is available for you.
Used Car Financing With Bad Credit
If you have bad credit, you may think that your chances of getting a loan for your next used car are somewhere between slim and none. This couldn’t be further from the truth. In fact, most used car dealers and online auto retailers offer loans for people like you with only fair or poor credit history. While you won’t be eligible for some of the better bank-run loans, you can still get a loan on competitive terms.
Just like the people with good credit, you should try to pre-qualify for a used car loan. This will allow you to see your options and set your budget. The worst thing to do is to take out a used car loan that you cannot afford. By pre-qualifying, you can see how much you can borrow, work out the monthly payment amount, and then determine if you can afford it based on your monthly take-home pay.
The advantage of getting a used car loan is that it can be the first step to rebuilding your credit. Paying off things like a car loan, home mortgage, or credit card in a timely fashion demonstrates to the banks and other financial institutions that you are credit worthy. This means that you are a good risk for them. You can actually check your Equifax Canada or TransUnion Canada credit score each month to see it going up. In addition, you will probably start to get mail from banks and credit card companies offering to do business with you. This is always a good sign for people who are busy rebuilding their credit.
Used Car Financing After a Bankruptcy
Personal bankruptcy was created so that people who have gotten into serious financial trouble can use the assistance of the courts to help them out of their situation. While this helps them discharge or restructure debts so they can begin to get their lives back together, it also is one of the biggest ways to damage credit. Filing bankruptcy can cause your credit score to drop as much as 200 points, leaving you with few options when it comes to things like credit cards. However, it doesn’t close the door on used car financing.
Just like people with poor credit, many used car dealerships will offer loans to people who are coming out of bankruptcy. While the interest rates may be higher and the terms not as good as you might get from a bank, these are still a good way to get a used car while rebuilding your credit. The fact is that most people need a vehicle to get to and from work, and a used car makes a great commuter vehicle. In addition, as you pay off your used car loan, you will see your credit score increase.
Refinancing Your Used Car Loan
The good news for folks who got used car financing either with a fair or poor credit rating or after personal bankruptcy is that you can always refinance your car loan. After you have demonstrated a history of making full and timely payments, and your credit score has increased as a result, you can then begin applying to other banks and financial institutions to see if you can get a lower interest rate, a lower monthly payment, or a longer term. You can also see if the used car dealership where you bought the car is interested in using the car you currently own as a trade-in for a newer used model. This will also allow you to retire a used car loan with less than optimal terms and get one with better terms and conditions.
Used Car Financing Is a Great Way to a New Beginning
We all need cars, and used cars remain the smartest vehicle investment you can make. In addition, buying a used car with a loan is an ideal way to give your credit score a significant boost. In this way, as you drive down the highway in your latest used car, your credit rating is cruising up the scale to good or even excellent.