How does buying a Vehicle using financing actually work? Bank loans vs. Dealership loans vs. Online loans
Are you ready to invest in a new vehicle? And confused by the plethora of financing options available? If so, you’re not alone! Each year nearly 2 million of Canadians take on the daunting buyer’s journey, but thankfully there is good news. In this article we will guide you through the loan application process, and the differences between lender types for your new car loan.
Lender Car Loan Application
The application process for a car loans is simple, with one catch, getting approved! Typically, dealership’s loan process is much faster, as they submit the application for you. If the car loan is through a private seller, then a bank loan will be required, which will require some more personal effort. In any case car loans can be obtained in these easy steps:
Step 1 Complete lender’s car loan application. The lender typically requires detailed personal finance information, paralleled with a credit check.
Step 2 Submit supporting financial documentation, which could include some of the following: notice of assessment, outstanding debt summary, and vehicle specification for your intended purchase.
Step 3 Lender approval waiting period. Depending on the lender option the process can take a couple of minutes, days, or in some cases weeks.
Now that we know the process and information needed for submitting a car loan to a lender, lets distinguish the main differences between your financing option.
- Bank Loan
All major Canadian Financial Institutions offer car loans but are not limited to the big five banks (TD, BMO, RBC, CIBC, and Scotiabank). Banks can be a safe and secure place to obtain a loan, even if you have good or ad credit. However, your credit score will influence the total amount paid over the loan life. Also, banks tend to have stricter car loan policies, which can make the process frustrating. Often bank lenders require lots of paperwork, with multiple in-person appointments. And like any good bank, they typically cater favourable terms to clients with good credit scores.
- Dealership Loan
If you’re looking for a car loan with less hassle and more options, then the Dealership may be a good buying choice. Many dealers will have selected models listed for 0% APR financing terms for up to 96 months. But what happens if the vehicle you want is not offered as 0% financing terms? Suppose you select a vehicle with higher financing terms and would like a lower rate and longer term. The dealer will often work with you at a lower interest or higher term to close the sale, which is not typically a luxury with most banks. Dealerships will have more finance options, than typical bank car loans. There is only one catch, both the Bank and Dealership lenders provide preferred lower rates to clients with higher credit scores.
- Online Loan
If low credit, restrictive financing options, and leg work has your new vehicle purchase feeling dauting. Then perhaps an online car loan is a good option for you? Canadians are now privy to more flexible loan options from online lenders. Online lenders are now offering zero down car loans, regardless of a credit score. The purpose of these loans is to connect you with a lender and dealership to find the vehicle of your choice, and with a rate superior to those explained above. There are preapproved car loans provided by online lenders, which greatly increases the car buying options you have available. Furthermore, the car shopping experience becomes more enjoyable with out the restrictions and endless financing terms offered by banks and dealerships.
Your buying journey can be enjoyable, hassle free, and fair. Not to mention your hard-earned money will go further, once all the options are really on the table for your new vehicle purchase.
References:
Statistics Canada – New Motor Vehicle Sales https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=2010000101
Buying a new car is bad personal finance, but I am OK with that – Rob Carrick