How Car Loans Work (and Why Getting Pre-Approved Saves You Money)
If you’re planning to buy a new or used vehicle, chances are you’ll need a car loan. Understanding the basics of auto financing—and why it pays to get pre-approved for a car loan before visiting the dealership—can help you save money, lock in the best car loan rates, and shop with confidence.
How Car Loans Work
A car loan is a type of financing that allows you to borrow money to purchase a vehicle. You repay the loan through monthly installments that cover:
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Principal – the amount you borrowed.
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Interest – the cost of borrowing, based on your credit score, income, and loan terms.
Most auto financing terms range from 36 to 84 months. Shorter terms usually mean higher monthly payments but lower overall interest, while longer terms offer smaller monthly payments but may cost more in the long run.
Benefits of Getting Pre-Approved for a Car Loan
Applying for a pre-approved car loan before you start shopping comes with several key advantages:
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Set Your Budget – A pre-approval tells you exactly how much you can afford, so you can focus on cars within your price range.
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Stronger Negotiation Power – With financing already in place, you’re less reliant on dealership offers and can often secure a better deal.
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Save Time at the Dealership – Skip the long finance office process and get straight to choosing the right car.
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Compare the Best Car Loan Rates – Shopping around for pre-approval lets you compare lenders and lock in the most competitive interest rates available.
The Bottom Line
Auto financing doesn’t have to be stressful. By getting pre-approved for a car loan before heading to the dealership, you’ll have a clear budget, better bargaining power, and access to the best car loan rates—making the car-buying process faster, smoother, and more affordable.
You can get pre-approved for your car loan online with Canada Drives. The online application only takes a couple minutes to complete. You'll get connected with a local dealership in your area who will show you all the vehicles you qualify for, just pick the one you want and drive away!
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