Buying a used car in Canada can be a difficult proposition, especially if you have bad credit. There’s a lot to know and a lot to think about – and when it comes time to “sign on the dotted line” and purchase your car, you may not even know how your used car dealer figured out the size of your monthly car payment!
In this article, Ride Time will break down the 7 biggest factors that influence the size of your monthly car payment. Whether you have great credit or bad credit in Canada, this is sure to help you as you search for your next vehicle! Take a look.
1. Your Credit Score
Okay, no surprise here. One of the first things that lenders look at when determining the APR (interest rate) that you should pay is your credit score. Your credit score is basically a summary of your ability to take on – and repay – previous debts.
Simply, if you’ve had an easy time taking out and repaying loans in the past, you’ll have a better credit score – and you’ll get a lower interest rate. If you are currently in debt or have had to declare bankruptcy or had a car repossessed, on the other hand, your credit score is likely to be lower.
A high credit score means you’re a lower risk – so you get a better deal on your loan. A lower credit score usually means you’ll pay a bit more, but you can still usually find a fair deal on a used car, even with bad credit in Canada.
2. The Value Of Your Vehicle
Again, this one is a bit obvious, but deserves a mention. A brand-new, $50,000 Ford F-150 is going to cost you more every month than a $10,000, lightly-used Honda Civic. The more your vehicle is worth, the more it’s going to cost you every month.
Obvious, yes – but it’s still something to keep in mind when shopping. If you can find a vehicle that’s a few thousand dollars cheaper, you can significantly cut your monthly payments.
3. The Size Of Your Down Payment
A large down payment will dramatically reduce the monthly cost of your auto loan.
If you buy a $10,000 vehicle with no down payment, on a 60-month loan term with a 3% interest rate, you’ll pay $180/month.
However, if you put down a 30% down payment, your monthly payment will sink to just $136/month – and because you’re not going to pay as much interest over the loan terms, you’ll save even more money in the long run.
4. Debt-To-Income Ratio
This is another credit risk factor that’s taken into account during loan applications. Simply, if you have a high income and a low debt burden, you’ll be a more attractive loan candidate, and will get more favorable terms.
Conversely, if you have a low income and high debt burden (or even a high income and high credit burden) lenders may be less likely to cut you a deal, and you’ll pay more per month.
5. Age Of The Vehicle
Counter-intuitively, you can usually get better lending terms on brand-new cars than you can on used cars that are a few years old, such as 2013-2014 models. This is because lenders know that, if you default on a new car purchase, they can repossess the car and resell it – and it will still have a high resale value.
6. The Length Of Your Loan
The longer your loan is, the smaller your monthly payments will be. For a 36-month, $10,000 loan at 3% APR, you’ll have to pay $291/month. The same loan on 60-month terms will cost you only $180/month.
There’s a catch here, though. The longer your loan is, the more interest you’ll have to pay. You’ll have a lower monthly payment, certainly – but the total cost of the car will be higher in the end.
Still, if you need a low monthly payment, negotiating lengthier loan term is a good way to save money on your monthly car expenses.
Come To Ride Time Today For The Best Used Cars In Canada!
At Ride Time, we serve both Winnipeg and customers all over Canada. With our unique lending partners and no-nonsense approach to selling used cars, we can help you find a fantastic vehicle – whether you have good credit, bad credit, or no credit!
Visit us online today, and learn more about what we do – and shop now!