You want to buy a car soon. Maybe you’ve already visited dealerships and settled on a certain make and model, or it might be up in the air, depending on what you can be approved for. With so many new models on the market and competitive pricing on used cars, what’s the smart way to buy a car?
For some, choosing between a brand new vehicle and a pre-owned car is a no-brainer. In other cases, it’s all about what’s best for the budget. Let’s weigh the pros and cons of buying a new car versus a used car and how financing works for each.
When you buy a new car, there’s a set of benefits that are quite attractive and obvious. Other perks are more subtle but just as important.
Of course, not everything that glitters is gold. Buying a new car comes with its own challenges too.
The used vehicle market is very robust in Canada and there are fantastic benefits to purchasing a used vehicle. Here are just a few reasons to choose a pre-owned car today.
As with everything, there are things to be aware of when buying a used car.
And what about the financing process? There certainly are differences between new and used cars when it comes to arranging the terms of your agreement. Here’s a breakdown of the benefits and drawbacks for financing a new car versus a pre-owned car.
The automotive industry makes it enticing to buy a new car. Interest rates are often subvented, meaning they’re lower than the posted bank rate, so you’re paying less interest over the period you’re paying off your car. It should be noted that you typically need to have a great credit score to get approved for such low interest rates.
However, it’s easy to get caught in the losing end of new car financing. It takes two to three years of car payments for most buyers to reach a point of positive equity in their new car loan.
Heard of being ‘upside-down’ in your car? That’s when you have negative equity, or owe more on your loan than your car’s current value.
Unless you’re able to put several thousand dollars down as a down payment on your new car, it can be a dangerous position to be in. If your new car is written off, you’d owe the bank more than you’d receive as your insurance settlement. You should definitely consider GAP insurance to cover this possibility.
Today, certified pre-owned vehicles are also eligible for special financing rates from certain manufacturers like Toyota and BMW. These rates make it affordable to buy a used car – even more so than a new car. Even if you don’t qualify for the lowest rate due to credit issues, the lower initial purchase price still makes buying a pre-owned car loan very affordable.
And used car loan terms can be as long as a new car – up to 84 months or longer.
Because the depreciation has slowed, used car buyers will often be able to start out in a positive equity situation or reach that point in months, not years.
And if being protected against unexpected expenses like car repairs is important, extended warranties are available and can be tailored to your needs. It’s easy to add this feature to most used car loans too.
If you decide to choose a used car loan, always go through a reputable dealership. Avoid ‘buy here pay here’ lenders who don’t report to the credit bureaus, meaning your credit score doesn’t benefit from your monthly loan payments.
Because some lenders don’t offer subvented rates, always check the interest rate that you’ve qualified for. It can make sense to get pre-approved for a car loan before visiting the dealership in person.
The price might be right or it could be the car that ticks all the boxes on your list. An very old used car could be attractive, but can you get approved for an old car loan?
For a lender, there isn’t much about an older car that makes the loan safe for them. Vehicles over ten years old especially are in the downswing of their lifecycle. One major mechanical problem could spell the end for the car, and they may not get the money owed on the loan.
Select lenders may entertain a loan for an old car, but you’re likely going to be limited to a very short term and a higher interest rate than a vehicle just a few years old. And since most loans in this realm are under $7,000 or so, they may not meet criteria for an auto loan in the first place. A personal loan might be the best way to finance an older car.
While it’s nice to own a shiny new car, the fact is that 60% of car buyers choose a pre-owned vehicle loan for a reason: it’s more affordable. A great way to rebuild credit, used car loans help insulate you from an upside-down situation and keep more of your money in your own pocket.
Canada Drives only partners with reputable dealerships in every city and town that can help you find the perfect vehicle for your needs and budget. Get pre-approved for the car you want while keeping payments affordable and strengthening your credit.
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