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A car loan or is a form of financing for the purchase of an automobile. It is a personal loan advanced to borrowers who seek to buy a new or used vehicle. Sources of financing include banks and credit unions in all Canadian provinces, car dealerships, online financial institutions, and help from family and friends. Car dealerships in Ontario, Alberta, British Columbia, offer auto loans at competitive interest rates. It is easy and quick to apply for a car loan, but they are front-loaded in many cases. This means that borrowers pay more in interest at the beginning. The downside to this arrangement is that you won’t be able to repay it early. Banks and credit unions offer personal service and competitive interest rates. There is no sales pitch for add-ons, and you may benefit from free disability insurance or life insurance. What is more, the finance officer will tell you if the vehicle you are about to buy costs too much for a car. The downside is that it takes longer to apply, which makes it less convenient than dealership financing. Online financial companies also provide auto financing. The major advantage is that online lenders offer competitive rates, and it is easy to apply. At the same time, there are scams to watch for, and borrowers are dealing with the unknown. Home equity is another option for borrowers who seek to finance a car purchase. You will benefit from competitive interest rates, but you are tying your house or automobile, which can be risky. Finally, you can borrow from a friend or family member, and you are likely to get a flexible financing at a competitive rate. The problem with borrowing from family members is that you could jeopardize a relationship.
Once you have chosen a type of lender to apply with, you should ask about the interest rate. The interest rate will vary depending on whether you want to buy a new or used car. Your credit score is an important factor as well. Your credit score and credit history tell financial institutions about your financing management skills and your money habits. If you are seen as a high-risk borrower, they will offer a higher interest rate. Note that the interest rate can be higher on a 60- or 48-month period if you want to get a low monthly payment. You will have higher monthly payments on a 36-month term, but you will be able to repay it quicker. Some car dealers and financial companies provide low-interest car loans, but it is often available for selected models only. You can get a 2 percent or 0 percent interest rate on a 60-month term, which is a much better option than 6.5 percent on a 48-month period. The longer lease may be a better option in this case. Generally, if the rate of interest is not prohibitively high, it is best to opt for a short-term one. You will end up paying a lot of money if the term is too long. When applying for an auto loan or lease, you should factor in any additional charges and fees that apply. These include document prep fees, tire fees, sales tax, and registration fees. Other charges may apply for special extended warranties. Finally, keep in mind that the total amount to finance depends on the down payment you make. If you put $5,000 down, this will lower the amount of the auto loan you have to repay. If the manufacturer offers a factory-to-consumer rebate, you can choose to apply it to the down payment you make. Do not let the salesperson use the rebate against you when negotiating the purchase price.