The Best Financing Options for Used Cars

When you decide to buy a used car, there are several ways of financing it. If you have ample savings for financing a used car, things are pretty straightforward. However, this rarely happens. For most Canadians, buying a used car involves seeking financing to make it direct and easy. Power Information Network (PIN) pegs the average monthly payment for new vehicles at $570/month which represents 18% of what the average Canadian earns.

To identify the right method for financing your car, it’s important to compare all available options. Note that every option comes with its advantages and disadvantages and it’s important to compare them carefully before picking the one for you. This post explores the best financing options for used cars.

Things to look out for when looking to finance a car in Ontario

When you compare financing deals for used cars, it is important to understand what exactly you should be looking for. Here are some of the things to look out for.

  • Make sure to select a financing option that you can afford to pay every month for the entire term of the loan.
  • Insist on knowing exactly what will happen in the case you default for a month or several months.
  • Compare the full cost of borrowing including all charges over the entire loan period.
  • Find out if your chosen financing option has other charges such as those attached to exceeding the forecast mileage or charges for paying off the loan earlier.
  • Compare car loan rates by tracking both the annual percentage rate (APR), that includes every charge you are required to pay, and the note rate.
  • Establish whether you can afford to meet the vehicle’s operational cost on top of the monthly financing charges.

The top options for financing a used car in Ontario

1 – Financing a used car through a bank

This is one of the top used car financing options in the market today. To put it differently, this simply means getting a loan from the bank to buy a used car. Though you might be tempted to simply request a loan from your bank, it is important to follow up with different financial institutions including credit unions to get the most advantageous option.

Benefits of using bank financing:

  • Because you have established a good relationship with your bank, they will provide the best financial advice.
  • Banks can be more reasonable when it comes to the loan repayment process. For example, if you fall back on repayment with a month or two, or even several, the bank may be more lenient compared to other lenders.
  • Many banks offering car financing in Ontario are usually open to negotiations about the terms of payments because they want to keep you as their client. For example, if you had opted for a monthly payment schedule, switching to a bi-weekly model to clear the loan faster will be easier.

Disadvantages of using banks to finance a used car:

  • Banks are very concerned about financing used cars.
  • The rules for financing used cars through a bank are pegged to a lot of things including personal credit score. If you have a poor credit score, the interest rate will be higher.
  • The approval of financing a used car through a bank takes time, as opposed to dealership financing where you can drive the car home the same day.

2 – Financing a used car through a dealership

The second most preferred method of financing a used car in Canada is through a dealership. It is preferred by many people because of the ease of acquiring the car. You walk into a dealership and walk out driving the used car of choice. However, just like banks, the dealership financing also has its pros and cons. Therefore, before going for the dealership financing, here are the benefits and disadvantages you need to know.

Benefits of using a dealership financing:

  • The most notable advantage of using a dealership to finance a used car is the ease of approval. It takes less time to fill out the forms and get the car you want.
  • The dealerships are business entities focused on attracting more clients to their organizations. Therefore, you are more likely to get special bonuses and discounts.
  • Because dealers are driven by inventory, most of them are ready to provide financing even to people with poor credit. Even those going through bankruptcy can still get dealership financing.

Disadvantages of using a dealership to finance a car:

  • Unlike banks that can be more reasonable, dealerships rarely allow users to deviate from set repayment plans. If you fall behind for a month, or several, and want to change the plan, a very high penalty will be applied.
  • In most of the cases, dealerships do not allow accelerated payments or lump sum clearance. Such payments attract serious penalties.
  • Dealerships aim to optimize profitability. This could mean that you get a higher interest rate. By the time you clear a loan with a high interest rate, you will have paid a lot more compared to other payment plans with lower rates.

The final take

If you are looking forward to buying a used car, one of the most important steps is getting the financing right. Using a bank or a dealership for financing a car are the two primary financing methods preferred in Canada. Note that picking the right car financing in Ontario requires a thorough personal evaluation to ensure that you only go for what matches your lifestyle, income, and goals.

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