Financing a car 101, Canada?
November 2, 2023 11:49 AM Subscribe
I need to buy a used car this week. I’d like to finance it. I’ve never done that before. What do I need to know?
My car got damaged and I need to quickly replace it. My top budget is $20k, but the less I spend the happier I’ll be. I’d like a small SUV. My credit rating is quite high, probably around 800 or high 700s. What do I need to know? How much should I be looking for for down payment and interest? How do I manage the actual purchase? I’ve never done this before and don’t know the first thing. Thanks!
My car got damaged and I need to quickly replace it. My top budget is $20k, but the less I spend the happier I’ll be. I’d like a small SUV. My credit rating is quite high, probably around 800 or high 700s. What do I need to know? How much should I be looking for for down payment and interest? How do I manage the actual purchase? I’ve never done this before and don’t know the first thing. Thanks!
Best answer: Used car sale places will push you to use their financing because it's profitable for them. So before you go, check out other financing options such as credit unions (if those exist in Canada) as intermod suggests. You'll very likely get a better rate on the loan from anywhere other than a car sale place.
posted by anadem at 1:01 PM on November 2, 2023 [1 favorite]
posted by anadem at 1:01 PM on November 2, 2023 [1 favorite]
Best answer: You can take out a line of credit at the bank - go to the bank in person to talk to them.
posted by St. Peepsburg at 1:16 PM on November 2, 2023
posted by St. Peepsburg at 1:16 PM on November 2, 2023
Best answer: The down payment can vary widely - many manufacturers incentivize buyers with the whole "zero down" thing, a big plus for a 'new' car. My bank has my mortgage, so a big down payment wasn't required, but 10-20% is what I would expect. There is also fees, titles, registration plus related charges - the magic term here is "out the door price" which in my jurisdiction come to about 12% and are generally not included in any financing loans.
The interest rate they charge will vary based on a number of factors including how old the car is and the term (duration) of the loan. At my credit union a 2022 or newer car (ie 'new') financed over 72 months or less gets the lowest rate and a loan for up to 6 years is 1 point higher. For a 'used' car made from 2016 through 21 results in the interest being 3 points higher and cars older than that are over 4 points higher.
Many banks will not finance cars over 10 years old. Start the financing process at your own bank, then a co-op or credit union. The terms they provide can be used as a baseline for negotiating at the dealership. That's the first step.
Second step:
Test drive some cars! But don't go alone. If you have someone in your life who loves cars, bad office coffee and new forms of tedium - rope them into helping. Even if your people are normal, ask around for anyone who has recently bought a car, and try bribing them with dinner to show up. It's a perfect job for an aunt or uncle.
Third step: Buy a car!
Once you have narrowed down what you want - there are services that will streamline this whole purchasing thing, like Costco. Car rental places are another okish source for lower stakes buying experience.
But most options for cars are going to be found at dealerships. If possible do the good cop/bad cop routine with the car sales folks. Know that they will try to get you to stay and stay as a dark pattern of persuasion - so make a plan to split the process up into different visits even if they end up on the same day. Many dealerships will start by asking you your "monthly budget" for your car purchase, and you can end up with a worse deal even if the price of the car is decent. So come prepared with your own financing, then get the car sorted out, and then talk financing. Ask how long any step of the process will take, know they will lie, and so be prepared to walk at stalling and any other hijinks. Buying a car online or on the phone are their own mixed bag, but a possible option after the test drive.
A loan amortization table should be regularly consulted - the Navy Credit Union shows that a 20,000$ loan for 36 months at 6.6% would result in monthly payments of 614$ and cost about $2,100 in interest. The same loan term but at 10% would result in monthly payments of 645$, which may not sound like a big change but would end up costing $3,232 in interest.
posted by zenon at 1:27 PM on November 2, 2023 [2 favorites]
The interest rate they charge will vary based on a number of factors including how old the car is and the term (duration) of the loan. At my credit union a 2022 or newer car (ie 'new') financed over 72 months or less gets the lowest rate and a loan for up to 6 years is 1 point higher. For a 'used' car made from 2016 through 21 results in the interest being 3 points higher and cars older than that are over 4 points higher.
Many banks will not finance cars over 10 years old. Start the financing process at your own bank, then a co-op or credit union. The terms they provide can be used as a baseline for negotiating at the dealership. That's the first step.
Second step:
Test drive some cars! But don't go alone. If you have someone in your life who loves cars, bad office coffee and new forms of tedium - rope them into helping. Even if your people are normal, ask around for anyone who has recently bought a car, and try bribing them with dinner to show up. It's a perfect job for an aunt or uncle.
Third step: Buy a car!
Once you have narrowed down what you want - there are services that will streamline this whole purchasing thing, like Costco. Car rental places are another okish source for lower stakes buying experience.
But most options for cars are going to be found at dealerships. If possible do the good cop/bad cop routine with the car sales folks. Know that they will try to get you to stay and stay as a dark pattern of persuasion - so make a plan to split the process up into different visits even if they end up on the same day. Many dealerships will start by asking you your "monthly budget" for your car purchase, and you can end up with a worse deal even if the price of the car is decent. So come prepared with your own financing, then get the car sorted out, and then talk financing. Ask how long any step of the process will take, know they will lie, and so be prepared to walk at stalling and any other hijinks. Buying a car online or on the phone are their own mixed bag, but a possible option after the test drive.
A loan amortization table should be regularly consulted - the Navy Credit Union shows that a 20,000$ loan for 36 months at 6.6% would result in monthly payments of 614$ and cost about $2,100 in interest. The same loan term but at 10% would result in monthly payments of 645$, which may not sound like a big change but would end up costing $3,232 in interest.
posted by zenon at 1:27 PM on November 2, 2023 [2 favorites]
Best answer: To clarify - line of credit could be your best option here since it is the most flexible; you can pay back the money at your speed and not some fixed loan term. So if you have extra money you can pay it down sooner and stop paying interest sooner. This line of credit is always available to you so if for eg in the future you need $ for repairs, same deal, take some money from line of credit and pay it off asap. Like a glorified credit card but much better rates.
Basically it looks like another account in your online banking profile of a fixed amount (eg. $20k at X%) that you take money from to pay for the car.
I did this when I bought my car.
And revisit terms from time to time so you can get better rates as they change.
posted by St. Peepsburg at 1:27 PM on November 2, 2023
Basically it looks like another account in your online banking profile of a fixed amount (eg. $20k at X%) that you take money from to pay for the car.
I did this when I bought my car.
And revisit terms from time to time so you can get better rates as they change.
posted by St. Peepsburg at 1:27 PM on November 2, 2023
Response by poster: The dealership guy is encouraging me to buy the car with his financing (8.99%) and then paid off in full in a week or so using money from my line of credit so I can take advantage of that better interest rate. Is this a good strategy? Thank you!
posted by nouvelle-personne at 1:38 PM on November 2, 2023 [1 favorite]
posted by nouvelle-personne at 1:38 PM on November 2, 2023 [1 favorite]
Best answer: The dealership guy is encouraging me to buy the car with his financing (8.99%) and then paid off in full in a week or so using money from my line of credit
He's trying to get paid his cut of the financing fees; this is no advantage to you, and you may go to write the check in a week and find that there's early-payment fees or other things that are going to cost you more than just paying for the car outright.
posted by AzraelBrown at 2:45 PM on November 2, 2023 [9 favorites]
He's trying to get paid his cut of the financing fees; this is no advantage to you, and you may go to write the check in a week and find that there's early-payment fees or other things that are going to cost you more than just paying for the car outright.
posted by AzraelBrown at 2:45 PM on November 2, 2023 [9 favorites]
Best answer: I tried to get a loan for a used car at TD and they said they didn't give loans for cars that were more than two years old. Two stinking years! We ended up going with the dealer financing, because it was pretty reasonable at the time (about 4%). Might have been able to do better if we'd shopped around, but I was so pissed at TD that I couldn't bring myself to do it.
posted by number9dream at 3:39 PM on November 2, 2023
posted by number9dream at 3:39 PM on November 2, 2023
Best answer: I have purchased one (1) car in my life and I paid cash, so I can't speak to most of your questions, but precisely because I was an idiot newbie I will share the best advice I got and used.
And it's advice I read right here on metafilter: get your car from a rental agency. I got mine from Enterprise, I know someone who had a great experience buying from Hertz, etc. This isn't for everyone, but I just wanted a nice boring car and I didn't want to deal with all the salesman bullshit. And this was perfect. The used rental car guys do not care. They've got all their cars listed online, the pricing is extremely straightforward, will talk to you however much or little you want, and don't do a bunch of shitty sales tactics at you. They're like hey you want a car? That's cool because we got cars, just holler when you're ready to sign.
10/10
posted by phunniemee at 3:58 PM on November 2, 2023
And it's advice I read right here on metafilter: get your car from a rental agency. I got mine from Enterprise, I know someone who had a great experience buying from Hertz, etc. This isn't for everyone, but I just wanted a nice boring car and I didn't want to deal with all the salesman bullshit. And this was perfect. The used rental car guys do not care. They've got all their cars listed online, the pricing is extremely straightforward, will talk to you however much or little you want, and don't do a bunch of shitty sales tactics at you. They're like hey you want a car? That's cool because we got cars, just holler when you're ready to sign.
10/10
posted by phunniemee at 3:58 PM on November 2, 2023
Best answer: The dealership guy is encouraging me to buy the car with his financing (8.99%) and then paid off in full in a week or so using money from my line of credit
He's trying to get paid his cut of the financing fees; this is no advantage to you, and you may go to write the check in a week and find that there's early-payment fees or other things that are going to cost you more than just paying for the car outright.
It may be partly about financing fees but I bet it's just as much about just getting the deal closed. He knows you qualify for the 8.99% dealership financing. He does not need to care the tiniest little bit whether you will qualify for a better rate somewhere else; once you've signed the paperwork that's your problem, not his. If you have a line of credit somewhere else and you can use it to pay off the dealership loan without early-payment fees, sure, it'll work, but those are "ifs" you'll want to be sure about.
posted by mskyle at 4:58 PM on November 2, 2023 [2 favorites]
He's trying to get paid his cut of the financing fees; this is no advantage to you, and you may go to write the check in a week and find that there's early-payment fees or other things that are going to cost you more than just paying for the car outright.
It may be partly about financing fees but I bet it's just as much about just getting the deal closed. He knows you qualify for the 8.99% dealership financing. He does not need to care the tiniest little bit whether you will qualify for a better rate somewhere else; once you've signed the paperwork that's your problem, not his. If you have a line of credit somewhere else and you can use it to pay off the dealership loan without early-payment fees, sure, it'll work, but those are "ifs" you'll want to be sure about.
posted by mskyle at 4:58 PM on November 2, 2023 [2 favorites]
Best answer: The prime rate as of today is 7.2%. 8.99% is not horrible in that context.
I quickly looked at AutoTrader’s inventory of sub $20k SUV and it wasn’t exactly an exciting inventory. Makes leasing a $40k vehicle at 4.99% with 0 down (a promo I saw at VW) look a lot more attractive.
posted by shock muppet at 7:12 PM on November 2, 2023
I quickly looked at AutoTrader’s inventory of sub $20k SUV and it wasn’t exactly an exciting inventory. Makes leasing a $40k vehicle at 4.99% with 0 down (a promo I saw at VW) look a lot more attractive.
posted by shock muppet at 7:12 PM on November 2, 2023
Best answer: If you can, arrange financing at the bank/credit union before hand. You’re not locked in to it when you get approved, only when you actually buy and the bank disburses the money. Use the loan calculators to figure out what kind of payment you’re looking at. When the dealer asks you what kind of monthly payment you’re looking for tell them you’re looking at the out the door price of the car. Also let them know you’ve got financing arranged already and if you do decide to buy the car you’ll let them see if they can beat your rate. This way you’ve already tilted some things in your favor. This gives them less of a chance to try to hide the real price of the car, which they can easily do when someone is shopping for a payment amount, and you’re also not going to let them run your credit unless you’re actually going to buy. But it also tells them you’re a legitimate buyer since you’ve gone through the legwork of getting the financing ready.
Let’s say you’ve found the car you want, and it’s in your price range (you did check the loan calculators online, so you know a ballpark figure for the payment, right?) You want the out the door price. Not just the price of the car, but taxes, any dealer fees, registration fees, all of that kind of thing. Only negotiate on that out the door price. If it comes time to sign and that number on the paperwork doesn’t match the number you agreed to, don’t sign and tell them to either give you the agreed upon price or you’re done here. Some dealers will have figured out by now that you know what you’re doing, and they’ll want the sale to go smoothly so you shouldn’t have any issues. Others may try to get you for anything they can. If you feel uncomfortable with the way they’re doing things, look, it’s your money, they’re the ones who have to earn it, treat the situation accordingly. If they’re telling you “we can’t sell the car without this added tint/pinstripe/paint protection etc, and you don’t want to pay for it, tell them that you’re not going to pay for it and if that’s not acceptable then you’ll be on your way. (I have had this go both ways for me. One dealer immediately took those add on costs off the price. Same dealer four years later refused and said they were not selling the car without the add ons, so I left and bought elsewhere.) Again- it’s your money, they have to earn it.
You’re going to have two portions of the buying process - the sales part and negotiation, and then the F & I (finance and insurance) part. Some dealers will have the salesperson handle both. F & I will try to sell you the add ons in many cases.
Last thing - $20k sadly is not going to buy as much vehicle as it would a few years ago. Your credit, if those scores are accurate, should qualify you for manufacturer incentive rates if you were to buy new. New is more expensive obviously, but the difference in interest may very well close a lot of that gap. (I have a loan I got before things went nuts with interest rates and it’s at 1.99%. The manufacturer asked me about trading up, and the current incentive rate is 4.9%. That would end up costing me an extra $2500-3000 over the life of the loan. Use those loan calculators and get an idea of what different interest rates would cost over the life of the loan. It can add up.)
posted by azpenguin at 9:02 PM on November 3, 2023 [1 favorite]
Let’s say you’ve found the car you want, and it’s in your price range (you did check the loan calculators online, so you know a ballpark figure for the payment, right?) You want the out the door price. Not just the price of the car, but taxes, any dealer fees, registration fees, all of that kind of thing. Only negotiate on that out the door price. If it comes time to sign and that number on the paperwork doesn’t match the number you agreed to, don’t sign and tell them to either give you the agreed upon price or you’re done here. Some dealers will have figured out by now that you know what you’re doing, and they’ll want the sale to go smoothly so you shouldn’t have any issues. Others may try to get you for anything they can. If you feel uncomfortable with the way they’re doing things, look, it’s your money, they’re the ones who have to earn it, treat the situation accordingly. If they’re telling you “we can’t sell the car without this added tint/pinstripe/paint protection etc, and you don’t want to pay for it, tell them that you’re not going to pay for it and if that’s not acceptable then you’ll be on your way. (I have had this go both ways for me. One dealer immediately took those add on costs off the price. Same dealer four years later refused and said they were not selling the car without the add ons, so I left and bought elsewhere.) Again- it’s your money, they have to earn it.
You’re going to have two portions of the buying process - the sales part and negotiation, and then the F & I (finance and insurance) part. Some dealers will have the salesperson handle both. F & I will try to sell you the add ons in many cases.
Last thing - $20k sadly is not going to buy as much vehicle as it would a few years ago. Your credit, if those scores are accurate, should qualify you for manufacturer incentive rates if you were to buy new. New is more expensive obviously, but the difference in interest may very well close a lot of that gap. (I have a loan I got before things went nuts with interest rates and it’s at 1.99%. The manufacturer asked me about trading up, and the current incentive rate is 4.9%. That would end up costing me an extra $2500-3000 over the life of the loan. Use those loan calculators and get an idea of what different interest rates would cost over the life of the loan. It can add up.)
posted by azpenguin at 9:02 PM on November 3, 2023 [1 favorite]
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posted by intermod at 12:01 PM on November 2, 2023 [4 favorites]