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April 02, 2019

How Is A Car Loan Approved?

Buying your first car is an exciting milestone in anyone’s life.

The thought of having the convenience to go anywhere you want, whenever you want, in a vehicle you love is truly exhilarating.

But before you can drive off into the sunset, you’ll want to look into how you’re going to afford the vehicle. If you’re not paying in cash, you’re probably applying for a car loan in Ontario. If this is your first time getting a loan, you’re probably overwhelmed by the process of it all.

Before you stress yourself out, take a breather! You’ll be happy to know that the process isn’t that complicated once you understand how approvals work and how to be a desirable candidate for lenders.

So what’s the first step to getting a car loan? It’s understanding what it is first.

 Couple at dealership getting car loan in Ontario approved.

What Is A Car Loan?

There’s nothing like establishing your independence like buying a car. But sometimes they cost a lot more than what you can actually afford, which is why buyers start looking into different forms of financing.

So what is a car loan exactly?

It’s when a lender loans the borrower (in this case, you) money so they can purchase a car. As per their agreement, the borrower has to pay back the lender over the course of a fixed timeframe. These payments are usually made monthly and include some interest. The lender and borrower maintain this relationship until the loan is completely paid off by the borrower. Once they do that, they can finally say they’re a car owner.

It’s important to keep in mind that there are two types of loans borrowers can go for — secured and unsecured loans. What’s the difference?

For any secured loan, you have to provide the lender some sort of collateral in case you fail to make payments. In this case, if you consistently fail to pay back your loan, your lender can repossess your vehicle, sell it and recover the money from that. Interest rates on unsecured loans are typically much more affordable for this reason. When it comes to getting car loans in Ontario, this is the most popular option.

On the other hand, unsecured loans are a lot riskier for lenders because they have no assets to fall on when borrowers fail to pay them back. Because of this, interest rates on unsecured loans are much higher when compared to other competitors. With that said, if times get tough for the borrower, they never have to worry about lenders taking away their vehicle. Instead, the lender has the right to send a collections agency to the borrower to try and get their money back.

When looking into any car loan, be sure to look into different types of lenders, their application requirements and their interest rate charges. This way you’ll have a better idea of who’s best to go with based on factors that matter to you.

Where Can I Get A Car Loan?

When getting a car loan in Ontario, there are many different options you can go with. The most popular ones include:

Banks and Credit Unions

Banks and credit unions are considered the more traditional route. They’re best known for having stricter application policies that require applicants to either have good credit or higher incomes in order to get approvals. Anyone purchasing a car usually has a relationship with at least one bank or credit union already, so when researching lenders, starting your search with your home branch is a good place to begin.

Dealerships

Who doesn’t love a one-stop shop? Getting a loan with your dealership is typically done out of convenience. Since you’re already there to buy a car, why not get a car loan there too? Dealers usually work alongside their automaker’s financing group, so they typically offer deals from them. But be careful! Dealerships are known to mark up quotes in order to strike a deal for themselves. Before you go in, be sure to educate yourself on the the market and other car loan competitors and don’t be afraid to negotiate for interest rates that are more manageable for you.

Online lenders

Thanks to the powers of the internet, there are many online lenders available as well. They’re extremely convenient because they help you compare rates right in the comfort of your own home. Before going with anyone, be sure to check reviews online to confirm the legitimacy of the loaner.

Some of the benefits of some online lenders are their flexible lending requirements. For example, CarLoans.ca is best known for securing car loans in Ontario to borrowers of all financial standings. Whether they have good credit, bad credit or filed for bankruptcy in the past, they believe in giving everybody equal opportunity to purchase the car of their dreams. Contact their dedicated team today to see how they can help you snag a deal that’s best for you.

What Do I Need To Do Before Applying For A Car Loan?

We get it, you want that shiny new vehicle on your driveway as soon as possible. But before you decide to apply to any car loan on a whim, there are some important things you need to do to ensure the process goes as smoothly as possible. Doing your due diligence will also increase your chances of getting the best loan possible. And who doesn’t want that?

Do Your Research

See a theme here? As you can see so far, there’s no “one size fits all” loan deal. Every lender is different — they all offer different rates and stipulate different requirements in order to qualify. Instead of diving into the one that’s most convenient, take your time to compare different interest rates to see which one is the best for you. Once you’ve found a lender that you like, look into their application requirements to make sure you qualify.

Couple budgeting their money before seeking a car loan in Ontario

Know Your Budget

Before making any major financial decisions, it’s important to take the time to crunch the numbers and see what you can actually afford. When it comes to purchasing a car and applying for a loan, besides the affordability of the car you want, make sure you have enough money for a down payment. Most lenders will require one before they start working with you. Apart from that initial cost, make sure you have enough money budgeted to meet their monthly payments.

Life happens, even to the best of us. To ensure that you don’t take a financial hit, make sure you have a couple months worth of car loan payments saved up so you can be confident that you’ll can make those installments. Remember, the key to budgeting isn’t just planning for right now, but for the months ahead as well.

Check Your Credit Score

Your credit score weighs heavily in the eyes of most lenders. Since scores are based on a person’s borrowing behaviour, credit scores can dictate whether or not your car loan gets approved. If it sits too low, some lenders may be inclined to reject your application as they see you as a high risk and worry you may not fulfill monthly payments on time.

If having bad credit is a major concern, you may want to take some time to repair it before seeking out a loan. On the other hand, lenders like CarLoans.ca specialize in helping those with bad credit land car loans. If you’re in a rush to get a car, going with them might be the best solution.

The best part? Getting that loan might actually help you improve your bad credit down the road. If you stick to the monthly payment plan, over time you’ll start to see your score bump up again.

Get Organized

Every car loan application requests certain information in order for your application to be processed. This includes proof of income, proof of residence, credit history, car insurance as well as all the details pertaining to the new vehicle you want to purchase. Make sure you have all the information requested of you before applying for a car loan in Ontario. Missing documents on your application could get your car loan rejected and slow down the entire process.

How Is A Car Loan Approved?

Once you’re set and ready to go, it’s time to apply! Depending on the lender, you may be required to apply in-person or online.

Once you’ve done that, the lender’s team will thoroughly look through your application to make sure you’ve met their criteria. Depending on where you go, approvals can take anywhere between 12 hours to 2 days.

What Factors Increase My Chances Of Getting Approved?

Credit Score

We’ll say it once, and we’ll say it again — your credit score is very important! Not just for car loans, but for various other financial matters as well. In Canada, a credit score is a score between 300-900 that evaluates your money borrowing behavior. The higher your score sits, the better your credit. Why does this increase your chances of getting approved?

Your credit score can tell a lender a lot in terms of your money borrowing habits. If you have a healthy debt-to-income ratio, pay your monthly bills on time and never really had a negative event occur on your credit history, you should expect to score anywhere between 650 and above. Lenders are more willing to lend to applicants they can trust will pay them back and those who fall under that category tend to have higher credit scores.

Income

Much like your credit score, income can provide lenders additional insight into the likelihood of you making your monthly payments. If they can see that you’re earning a steady amount of money each month, they’ll be more inclined to approve your application.

Employment

Lenders like seeing stability in their applications, and one of the key components of that is through employment. Showing that you have a steady job confirms that you have a steady income which again, reassures the lender that you’ll be able to pay them back in a timely manner.

For those who work as freelance, seasonal or temporary workers, this part of the application might be a little trickier for you. Lenders might ask you to explain your current employment situation or may decide to weigh other factors like income more heavily. For example, as a freelance worker, your work schedule might vary throughout the year. But if you can prove that you earn a certain amount of money annually, it may be enough to ease the lender’s mind.

Getting a co-signer

In the eyes of the lender, getting a co-signer onto your application essentially ensures that they’ll be receiving their monthly payments no matter what. If you some reason you cannot pay your monthly installments, the responsibility will fall onto the co-signer. This is a great option if you’re someone who struggles with bad or very little credit. Get a family member or close friend with a higher credit score to co-sign your loan, and your application will automatically become more desirable.

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