High interest car loans in Canada – Before You get one READ THIS!
First thing I want to say is I get it I understand everyone wants a good car to drive but before you finance a car with high interest consider this! $21,000 car loan with 25% interest will cost you $23,000 in interest if you take the 5 year term. Also realistically even if the car you buy is worth $21,000 you will only get around $12000, $15,000 for it if you chose to sell it. $23,000 + 21000 = $44000 for a car that when you purchased it was $21000! and remember with every kilometer driven the value of your car goes down most car dealers will tell you that as long as you pay your car bill on time you will be offered a lower interest rate in 1 – 2 years, this is only the half truth in fact you have to understand how credit works prior to knowing how to raise your credit score enabling to get lower interest rates.
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How to purchase a car the smart way
There are lots of ads of Japanese cars that say they hold their value and this is partially true. When it comes to any car there’s a period in it’s life where it will hover around the $10,000 and below mark when you have bad credit you don’t want to spend more than the bare minimum to finance a car because the thing to remember is the MONEY being spent example if you have bad credit and you finance an expensive car you will inevitably pay more cash in interest fees however if you purchase a cheaper vehicle like one that costs only $3000 – $5000 you’ll be in a much better position because a car that costs $3000 for example to finance at 25% Interest rate will cost around $2900 in interest.
But here’s the problem with the above example the sub prime portion of a major bank will usually only lend on vehicles that are $10,000 or above. This is why in this instance you request the services of a sub-prime lender that will lend for a $3000 vehicle they’re out there the one that comes to mind is Trend Financial there are actually tons of them out there when going this route the key questions to ask are ” How much will this loan cost me in interest fees” and “Is this an open loan” The reason you ask if it’s an open loan is because as a customer if the loan is open you’ll have the ability to pay off the loan early without penalty. This is where building your credit comes into play!
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How to build your credit score so you can get lower interest rates
A lot of shifty car salesmen and car finance people will tell you that as long as you pay your car loan on time for 1 – 2 years the bank will offer you a lower interest loan but this is only the part truth. If for example you’re paying your car loan and you have existing credit card loans, personal loans etc. all on your credit file the bank will look at you as a high risk client and won’t offer to help you.
The bank looks at everything from a risk stand point and even if they have a sub prime department that’s financing your car loan it doesn’t mean that their Prime rate department will be interested in lowering your payments just because you’ve been honoring your sub-prime payment agreement. If you have a bunch of other debts apart from your car loan the bank will look at you as a person that might default and if you default they’ll be liable for the loss and being that cars depreciate in value your car as collateral is not something they’ll be interested in pursuing. try to remember Banks are in the money business not the car buying business!
This again goes back to me saying why you should only finance cars that cost between $3000 – $5000 because in those instances the most you’ll lose is $10,000 it’s when you purchase cars for $12,000 and above where those high interest rates really start to drag you into the ground. Always remember Banks like any other business are only helping you because they can make major profit off of you. Most major banks will only lend on Cars $10,000 and above because of the expected rate of return, don’t confuse that with them wanting you to purchase a fancy new car, in many cases major banks operating in Canada are the main reasons why there are so many indebted Canadians driving newer cars today.
Try not to get caught up in this culture if you don’t have good credit yet don’t purchase a car that costs more than $5000 If you discipline yourself you can pay off a car loan this low in no time which you can then use as an asset for either a down payment or line of credit. If you want to learn how to raise your credit score thus enabling you to get lower interest loans consider reading my eBook!
>>>How Canadians Raise Their Credit Scores Fast Click here Now for the eBook