How to Finance a Used Car: Options and Considerations

There are so many things to consider when buying a used car. Do you need a car or a truck, a minivan, or an SUV? You can often make those decisions based on your lifestyle needs but what about your options for financing? 

In today's world, it is common to get an auto loan to purchase a vehicle. This means that we borrow money to buy the car and make monthly payments to the lender over a specified loan term. 

What Are My Car Financing Options?

Traditional Institutions

This is the preferred option for financing, which is available to borrowers who have a good payment history. If you have a credit score range between 600 and 900, you will likely qualify for a bank loan.

Banks and credit unions tend to offer loans with lower interest rates and preferred loan terms to their customers. These loans end up being far less expensive than bad credit loans. 

Non-Traditional Lenders

Traditional financing options are usually not available to borrowers for several reasons.

• You have a poor credit rating between 300 and 600

• You have a history of missed and late payments

• You have declared personal bankruptcy in the past

• There is a credit record of a consumer proposal

• You don’t have an established credit record

• You are an immigrant or newcomer to Canada

All of these factors point to a high level of risk that suggests that you may not be able to repay your loan. In this instance, you can look for a loan from a non-traditional lender who offers bad credit car loans. 

In-House Leasing

If your credit is extremely poor, some dealerships will offer in-house leasing. While this option will get you into the car, your payments might not help to improve your credit rating as many of these loans are unreported. 

The Pros and Cons of Bad Credit Car Loans

The Pros of Bad Credit Car Loans

• These loans often have a high loan approval rate

• There is a quick approval process

• Bad credit car loans are a great way to build up good credit

The Cons of Bad Credit Car Loans

• These loans can be expensive, with high-interest rates 

• They often offer unfavourable loan terms compared to traditional lenders

What Can You Comfortably Afford?

Examine your budget. How much money can you afford to pay for your car each month?  

Keep in mind expenses such as insurance, car maintenance, and gas. Factor 

in a little wiggle room for other costs that may pop up over the course of each month. Then use our car loan calculator to find out the maximum price of the car that your monthly payment will cover. 

Tips For Securing the Best Bad Credit Car Loan

How to negotiate a car loan with bad credit

Shop around! Don't settle on the first car you see, and commit to a lender. You should also check that the dealership works with a number of lenders so they can help you to secure a good interest rate. Interest rates for bad credit car loans can range from 6.5% to 30%, so it is in your best interests to shop around for the best option. You’ll also want to consider what credit score range they accept to find one that matches your needs.  

Set a Realistic Budget

Compare your income and expenses. Exactly how much money can you afford to spend on a car each month? When you've figured this number out, use our car loan calculator to find out the maximum budget for a car. If your budget comes out as $15,000, don't max out at this level. 

You also have the option of letting the app know how much you can afford to pay each month, and it will let you know the price of the vehicle that you can most likely afford.

Offer a Downpayment

Lenders like to see a downpayment, and it improves your chances of securing a better loan. It may also bring your interest rate down by several points, so you stand to save money in the long run. 

Buy a Less Expensive Car

The more expensive your car, the higher interest fees you will have to pay. Let's look at an example to illustrate this. 

If you buy a car for $12,000 with an interest rate of 15% over five years. Your monthly payment is approximately $285, with total interest payments of $5,130.

If you opt for the more expensive car for $24,000 with an interest rate of 15% paid over five years, your total monthly payment is $570, and your total interest payments are double at approximately $10,250. By purchasing the $12,000 car, you get to keep over $5000 in your pocket over the course of 5 years. 

If one of your goals is to improve your credit score, choose a cheaper vehicle. This is beneficial for several reasons:

• Your monthly costs will be lower, so your loan is easier to manage

• If you have the ability to make your loan payment on time and in full, your credit score will improve

Find a Dealership With a Large Inventory

You know the saying, "beggars can't be choosers?" The fact that you may only qualify for a bad credit car loan doesn't mean that you need to compromise on your choice of vehicle. Look for a dealership that has a large inventory of vehicles so you can find a car that you are happy with. 

Choose a Dealership That Works With Several Lenders

It is important to look for a dealership that works with a large number of lenders. That way, they can shop around and find the best rate for you. This is important as even a drop in a few percentage points will lower your monthly payment and significantly reduce the amount of interest you have to pay. 

How To Apply For a Bad Credit Car Loan

Applying for a bad credit car loan is easy. Once you know which vehicle you would like to purchase, submit your pre-approval application online. We will only ask for the information required by the lender, such as:

• Financial statements that include several months of checking and savings account statements.

• Employment history showing secure employment for several months. You can use pay stubs or provide written proof of employment.

We can usually process your paperwork within a day, so there is no waiting around for your new car! 

Tips To Improve Your Credit Score

You have your new car, and now you have to pay back your loan. Bad credit car loans are expensive, so you will want to use this new loan to put you in a better position when you buy your next car.

Stay on Top of Your Payments! 

Make your car loan payments in full and on time. A credit report that shows consistent payments over the course of several years will significantly improve your credit score. This will give you more options when you apply for your next loan. 

When you can show stable employment and a good credit rating, you are more likely to qualify for a loan from a traditional bank. This way, you can take advantage of the lower interest rates they have to offer and purchase a fancier car from us next time!

Find Out If You Can Make Extra Payments

Some lenders allow you to make extra payments on your car loan so you can pay it off more quickly. If you manage to save up some extra money or get a big fat bonus check, consider putting it towards your auto loan debt. You’ll save money in the long run. 

Boost Your Credit Score With A Bad Credit Car Loan

Having a poor credit score does not mean you will be stuck with bad credit loans and high-interest rates indefinitely. When used properly, these loans can work in your favour and help to secure better, cheaper loans in the future. 

At Insta Auto Solutions, we love helping people. Our goal is to find the most suitable car for your immediate needs and get your credit rating back on track in the process. Call or visit one of our dealerships today! 

Rebuild Your Credit With Insta Auto Solutions

Whether you are just trying to find out the value of your vehicle on a trade-in, or wanting to calculate what a car loan might cost a month? Or looking for help with rebuilding your credit, we are here to help! 

Find your next vehicle, secure a loan, and build up your credit with Insta Auto Solutions. Contact us today! We are happy to help you! 

Insta Auto Solutions Offers a variety of conveniently located dealerships including but not limited to Edmonton, St Albert, Acheson with new stores opening in Kelowna, Saskatoon, and Manitoba