Shopping for a new car can be a thrilling ride: checking out the sleek latest models, exploring fancy features and add-ons, and imagining yourself behind the wheel on an endless road trip. But, when financial obstacles arise, such as a bad credit history, they can present a serious detour.

The endless array of deals and terms offered by lenders hoping to attract your business can be confusing and frustrating. Suddenly, the freedom of the open road looks like an impossible dream.

Happily, that dream doesn’t have to end just because you have a less than sparkling financial history. If affording a new vehicle that fits your requirements and lifestyle poses a challenge, ConsumerAuto is ready to help you meet it. We’ll support your search with lots of options for finding the best rates on car loans with top lenders, helping you make informed decisions that won’t send your finances into a tailspin.

Read on for all you need to know to find a car loan that makes sense for you.



How Do Car Loans Work?

These car loan financing terms and procedures can vary widely among dealers and lenders, but they all follow the same essential principles. Here’s the basics you need to know to get started.

Getting A Car Loan

Whether you are shopping for a brand new or slightly used car, few of us have the cash on hand to pay for the purchase outright. That means looking for financing via a loan, either from a traditional financial institution, such as a bank, or through an alternative lender.

No matter what route you take, financing begins with filling out an application. Applying for a car loan is fairly straightforward, but you do need a degree of preparation and awareness.

When you open an application, the lender will begin with an assessment of some basic personal information: proof of identity; details on your employment, expenses, and income; and information on your financial situation, including any existing debt obligations. These will most likely require documentation, so it’s wise to pull together banking statements, rental agreements, etc., in advance.

Financing managers typically perform a credit check, which will include review of your credit score: a three-digit number calculated by analyzing your past and present borrowing behavior in order to represent your overall creditworthiness. If your credit score is low (below 500), you may face a tougher time finding approval. However, if your score is in the higher range (above 650 or so), you have a much greater chance of having your application approved.

If your application is approved by a bank or financial institution, you will receive the balance of the loan as a single payment, which can then be used for the purchase of the vehicle, either from a dealership or another seller. This loan is then paid back over time, just like any other kind of automotive finance loan. Alternately, if financing is secured with a dealership, the loan will be paid back to them in periodic installments.

Either way, once the application is approved, you’ll take possession of the car with the expectation of managing the necessary payments, as per the terms of your agreement. The nature of those terms, however, is determined by a few important factors.

credit history car loan

Your Credit History Matters

Just as with the application process, the most significant factors affecting your loan rate are your credit history and credit score. The amount of debt you currently carry, your repayment history, your income, and—perhaps most critically—your credit score are all factors lenders consider to create a picture of your trustworthiness.

A poor history of managing credit, as evidenced by a low credit score, indicates a potential risk of repayment, and this will usually result in paying a higher interest rate. A good credit history, however, tells lenders you’re likely to meet payments and opens up possibilities of an easier interest rate.

Shopping for a new vehicle when carrying bad credit definitely presents challenges, but it’s far from impossible. ConsumerAuto specializes in connecting you to financing options that work for your needs, regardless of your financial history.

The Shortcut Or The Long Haul

Another important consideration in the loan process is the term of the loan term. A shorter-term loan usually comes with higher payment installments, but the car loan will be paid off faster. A longer term equates to lower monthly payments, but over time, that will add up to paying more in the long run.

Your monthly payment is most often a fixed amount, which means it will remain the same over the life of the loan. A portion of each payment made is applied toward the principal, while the remainder goes toward interest. When you sign up for a car loan, the total cost of borrowing, including all applicable simple and compound interest, is provided as an annual percentage rate (APR). This gives you a clearer sense of what you’re paying for your vehicle, beyond just the sticker price.

Whether your loan term is long or short, it’s crucial you make payments in full and on time. That will keep your credit solid and benefit you in the long run, especially when it’s time to upgrade to an even flashier ride.

Sparkling New vs. Slightly Used

Another major factor to consider when shopping for car loan financing is the choice between a new or used vehicle. There are benefits and drawbacks to each, and how you decide will have a direct effect on your car loan.

A fresh new car is an alluring option. A new car typically means lower costs on maintenance or repairs, plus most new vehicles come with warranty protection, which offers invaluable assurances as far as safety and upkeep.

However, a brand-new car likely means a steep overall retail price. It’s also worth bearing in mind that new cars begin to depreciate immediately, so the potential resale value starts to decrease as soon as you turn the key.

For many buyers, a used car can seem like a more financially manageable option. The overall price is likely lower, meaning a more affordable down payment or even paying for it outright in cash, which can result in huge savings over time. However, even with a used car, most of us will still need to explore financing options to pay for the purchase.

When it comes to financing, the choice between new and used isn’t quite so clear. Over time, a new car could potentially be a better deal. New cars often come with special dealer financing options, sometimes even 0% financing. That means, despite what you might think, the interest rate that comes with a new car might be lower than a less expensive used car. Make sure to do the math before you go for what seems like the obvious deal.

How To Get A Great Deal On A Car Loan

Shopping around for vehicle financing can be daunting, but it doesn’t have to be. Here’s some easy tips to help you get the most for your dollar.

Be Prepared

When shopping for a car loan, your first step should be doing some preliminary research. Read up on how car loans work to know the meaning behind the detailed fine print. Scan the latest dealer offerings, including those potentially valuable (and maybe not so valuable) dealer incentives, to know the existing market. If the first offer you find doesn’t seem fair, be prepared to move on.

Know Yourself

For potential lenders, your financial history speaks volumes about your trustworthiness. The rate you pay is directly affected by your credit score. In Canada, you can obtain your credit file from TransUnion and Equifax. Checking your score before hand lets you see how trustworthy you appear to finance managers. And, if you have time, work on paying down debt to possibly nudge your score up before you even start negotiating.

Lay More Down

When you purchase a vehicle, it’s common for an automotive dealer to ask for a down payment when purchasing. When you have credit that’s less than stellar, the required down payment will be between 10% & 20% of the vehicle’s value. A larger down payment, if possible, will knock down the total amount owing, which will not only reduce those monthly payments, but could boost your chances of getting your application approved for the loan you want.

Seek Alternatives

If bad credit (or no credit) is creating a roadblock in cruising away with the car of your dreams, explore the possibilities offered by lenders specializing in bad credit lending.

ConsumerAuto takes the pain out of car loans. Our mission is to help all buyers find the vehicles they want at terms that work for their individual needs, regardless of their financial history. Our unique matching process creates connections between buyers and lenders who share our philosophy of empowering consumers. There’s no invasive credit check and no deceptive marketing pushes—just great rates from the most reputable online lenders, with support at every step from experts knowledgeable in all aspects of vehicle financing.

Your trip of a lifetime begins now! Contact ConsumerAuto today to get started.