The Ultimate Guide & FAQ for Financing a Car in Ontario Canada

May 26th, 2021 by

What’s in this article?

Yousaf Jamshed: Hi, My name is Yousaf. I’m one of the finance managers here at Team Chrysler.

Hadeel Hijazieh: Yousaf, we’re going to ask you a few questions about financing. The first question is.

How Does Financing a Car Work? Whether it’s Used or New?


Yousaf Jamshed: Financing is basically through the major banks that we work with. You can name Scotiabank, TD, BMO. We work with all of them. And the convenient thing about it is that you have the in-house financing at the dealership. So you don’t have to go out to a bank and get your loan arranged and then come and buy a car. You can do it all at once when you come into the dealership. So we have the vehicle here for you. Once you select the vehicle, you can choose how much down payment you want. So once you put that down and then your payment is going to be based off the current interest rates, based on if it’s a new vehicle, which they have the special rates with Chrysler at this particular dealership. And then you have the used vehicle rates depending on the year and mileage of the vehicle.

So at that point, you would just basically get a payment based on that. And you finance the remaining amounts. You can do a variety of different things, bi-weekly, weekly, monthly, as you’re comfortable, and you just make the payments for your vehicle. And the beautiful thing about auto loans is, basically, they’re open loans. So some people are concerned about the interest. So if you are concerned about that, you can actually pay off the loan and you save the interest for the remaining period. So for example, if you have a eight year loan and you pay off in two years, the interest is calculated based on the two years that you made the payments. And then obviously the remaining that you would’ve had to pay is paid off and go straight to the principal.

Hadeel Hijazieh: Okay. And then when I come into the dealership to finance a car,

Do I Have to Fill Out a Finance Application Before I Start?

Yousaf Jamshed: So what happens is once you select the vehicle, we make sure the vehicles are correct as per your requirement. You come meet one of the finance managers, me in this case. And then we go through the credit application for you. So credit application goes over basic details in regards to your correct information, where you live, your employment, how much you making, your home and assets, et cetera. It’s information everybody would know off the top of your head. So you don’t have to prepare too much for this. It’s a very straightforward. And from then onwards, it’s enough information to apply to the banks. And if we need further information, we let the customer know, but for most people it should be enough and that’s pretty much it.

Hadeel Hijazieh: Okay. My other question is,

Can You Return a Financed Car Back to the Dealer?


Yousaf Jamshed: So how it works is once you have the financing setup and you have bought the vehicle. So that vehicle is essentially yours at that point. Okay. So to rid of the financing, what you could do is you could either sell it to somebody else and then the difference if you’re asking them less than what you owe, you have to pay off, of course. Sometimes it could be a little bit more complicated just because the way the amount gets paid off and the difference needs to be accounted for and just arranging the funds. You can also trade into the dealership, which is what most people do.

If, for example, I need a different kind of vehicle. Maybe my family has gotten bigger and I need a van at this point. So the current sedan I’m driving does not suit my needs anymore. I would just go to the dealership which I want to purchase the van from. And I would trade in my vehicle and they basically will set up the loan for the next vehicle and then take care of the difference as well, based on the trade value at that time. And definitely there are a couple of ways to go about it. If you want to sell privately, you can even get somebody and run a transaction through the dealership to get the financing arranged. But most people do end up trading the vehicle in.

Hadeel Hijazieh: Okay. My other question is,

Can I Finance a Car With No Job?


Yousaf Jamshed: For financing we do require employment, of course. Just because when you’re financing, you have to be committed to a payment. And the in the bank is definitely looking at the fact that there’s an income source. So for the employment, it has to be some employment there, because obviously you need the income to pay for the vehicle.

Can I Finance a Car Without Full Coverage Warranty?


Yousaf Jamshed: So there’s a warranty that comes with a vehicle being a new vehicle. There’s a warranty that’s the balance of the factory warranty that’s left on the vehicle if you’re buying something used that’s not super old. And then there’s options to get extended coverages, as well. Some cars don’t have warranty at all. So you can get fully protected that way too. There’s also, whenever you’re applying for credit, there’s ways to protect yourself in regards to your life and disability. So that way, if you want to add that protection on, that’s completely optional, you can definitely add it on. You can also secure your loan and protect the loan balance with something that’s called gap protection.

There’s a few ways you can actually protect yourself when applying for the financing and for some, they may be more inclined to do it than others. Some people paying a big down payment don’t really require, for example, gap protection, because they already have equity in the vehicle. Your loan is not going to be more than what the vehicle is going to be worth. So in that situation, some coverages don’t apply. But there are protection options that we go over and make sure all customers are aware of whenever you’re purchasing a vehicle and doing the financing.

Hadeel Hijazieh: The big question,

Can I Finance a Car With Little to No Credit?


Yousaf Jamshed: So we work with all credit types at our dealership. And we have a long history of experienced finance managers here. So that being said, it all depends on the particular situation, but I would say our approval rate is fairly high. I would say 90% plus, we get most people approved. Assuming you have income source and you should be able to get some kind of approval.

Hadeel Hijazieh:

What is a Good Credit Score to Finance a Car?


Yousaf Jamshed: Credit score is one part of your whole credit equation. There is so many other factors that contribute to whether you get approved for a loan at all. There there’s things like how many different types of credit you have and the credit it can be referred to as straight lines. For example, you have a credit card, a credit line, you have an auto loan, you have a mortgage, those are called credit trade lines. So depending on your experience with that, and also depending on your repayment history and that your utilization and just how long you’ve had certain credit items and that your ratio to your income versus your obligations. So there’s a few things that are involved in getting an approval. So definitely a credit score is not just the only thing but a reasonable or average credit score in Canada is around on the mid-700s as per what I’ve read.

Hadeel Hijazieh: Well, everyone asks this because some banks attract people to do financing through them. So,

Should I Finance a Car Through the Bank or a Dealer?


Yousaf Jamshed: So the beautiful thing about doing a dealer is that you have the access to all the banks from your bank representative at the dealership, not just one specific bank. So we tend to shop the rate for you, assuming that’s applicable and get you the best possible rate when it applies. And the other thing is with certain situations like new cars, our new car rates, because they’re specials with the manufacturer and the banks, they have an agreement together to provide those subvented rates. Most banks won’t be able to match or even come close to those rates. So definitely it’s always a good idea to get the financing at the dealership. And it’s also more convenient and it will save you time.

Hadeel Hijazieh:

Will Financing a Car Build My Credit?


Yousaf Jamshed: Definitely. Any item that’s being recorded on your credit history and you’re making good payments for, and you’re not missing your payments, does add to your credit history. It’s like a job on your resume. So if you have one job versus a few different jobs with a variety of experience it shows what kind of person you are and your credibility and definitely it does make an impact on that.

Hadeel Hijazieh:

How Can I Get Zero Financing On a Used Car?


Yousaf Jamshed: 0%? So 0% financing is not applicable on the used vehicles, just because they go through the bank and the bank rates right now, depending on the model year, one of the lowest rates right now is 3.99 on a used vehicle. I’m talking 2020, 2021. And depending on if your credit is really good, maybe we can get that as well. So rates wise, it does fluctuate. It depends on the bank’s for programs at that time and the specific vehicles as well. But 0% is usually never the case on used vehicles, especially. With new cars there are oftentimes there’s 0%. For example, right now we have 0% on the new Ram, which was because we have that subvented rate from Chrysler and the banks, they partnered together to offer that subvented rate.

Hadeel Hijazieh:

Can You Cancel a Car Finance Agreement Within 14 Days?


Yousaf Jamshed: Can you cancel? It depends for what. Depending on what it is. If something is not sort of lined up with what you have agreed, then there might be certain situations where that could be applicable. That’s very rare cases, though. In most cases and in cars, usually all sales are final. So as soon as you sign the document, the bill of sale, you have bought that car. So there’s no cooling off period in automotive sales.

Hadeel Hijazieh:

Can a Parent Finance a Car for Their Child?


Yousaf Jamshed: Definitely. And this is the case with a lot of the young people that that require financing. Where the parent comes in as a co-signer, co-applicant. And it’s good to start the financing, if possible, early on, just because it adds on to the credit for the younger individual to help build their credit. Because eventually you’re going to need to use your credit for either a car loan, a credit line or a home maybe, you know what I mean? So it’s good to have that kind of experience there to build your credit.

Hadeel Hijazieh:

Can You Transfer a Car Finance to Someone Else?


Yousaf Jamshed: Finance can be transferred in certain situations. It really depends. But mostly what happens is, for example, if I’m selling my vehicle and somebody wants to take over the financing, they’re probably just going to run the transaction through the dealership. The dealership buys the car at the price agreed upon and if there’s any other fees and stuff involved, and then the new customer will finance that vehicle through the dealership as if they were buying a car from the dealership. So it’s optimal to run the transaction through the dealership. It’s not like the lease where it’s easily transferable, but in certain cases it could be.

Hadeel Hijazieh:

How Do I Finance a Car From a Private Seller?


Yousaf Jamshed: Private seller? You would have to go to the bank. This would be the usual sort of the case. It’s a little bit tougher to do that. Just because it requires more time. You have to go in person to the bank, you have to talk to them and then you get approved for a loan over there. And with someone that’s selling privately, you also cannot sort of guarantee the condition of the car and you’re buying it from someone that’s owner of the vehicle.

It all depends on the specific instance, but there are some cases where it’s not as secure or you don’t have as much peace of mind as, for example, our dealership. Because the dealership you buy the vehicle, we are a place of business, we are here, we’re going to be here. And when someone is selling your vehicle, they might not disclose something properly. They might not know the legal obligations. You know what I mean? Or when you’re buying the vehicle, you don’t know maybe something to check for. You assume everything is good and there could be something that’s not good. There’s always things up in the air, but that’s why going to a dealer is usually the easiest way to get a vehicle.

Hadeel Hijazieh:

I don’t understand this question, but maybe you would,

How Much Negative Equity Can I Finance on a Car?


Yousaf Jamshed: It all depends on the value of the vehicle you’re purchasing. There is a cap, depending on your credit, depending on the vehicle you’re purchasing, it’s called loan to value ratio. Because the bank is only going to allow a certain amount more than what the vehicle that you’re going to finance is worth. It usually goes up to, maybe I’ve seen in some cases, 20%, but I don’t see it going that much more higher.

Hadeel Hijazieh:

I think we went over this, the requirements to finance a car.

Do You Need a Down Payment to Finance a Car?


Yousaf Jamshed: Definitely, you don’t need to have a down payment. In certain cases, it does make the approval easier. In certain cases, the bank requires it as a condition. It all depends on your credit. But to get approved with a down payment is definitely much easier, just because the loan amount that you’re asking for becomes less and the bank sees, you’re putting some money into it. So they feel a little bit more secure to give you the loan for it.

Hadeel Hijazieh:

What information do you need to finance a car? I think we went over that.

What is Finance Charge on My Car?


Yousaf Jamshed: Finance charge? So we don’t really have a finance charge. Certain dealerships have a financing charge or financing fee, it all depends on the dealership you’re purchasing for. But the main thing with financing is, there is the interest rate that’s factors in, and initially there’s a lien registration fee, which usually isn’t that much. That’s part of the contract, your payment’s not going to really changed. But main thing that factors into the payment is the interest rate.

Hadeel Hijazieh:

How Do I Get a Low Financing Payment on a Car?


Yousaf Jamshed: You extend the term as long as possible, and you put the most down payment as possible. And obviously, if you get a cheaper vehicle, the loan is going to be for a lesser value. And then you will be getting a lower payment.

Hadeel Hijazieh:

What is a Good Finance Rate for a Used Car?


Yousaf Jamshed: The standard rate of interest on most cars at this point in time is 6.99. Assuming you have decent credit, that’s what you get the approval for. In some cases I’ve seen lower, definitely a 5.99, 4.99. It all depends on the model, year of the vehicle. It all depends on the credit of the applicant and this particular bank and the programs at that point in time.

Hadeel Hijazieh:

What Insurance Do You Need to Finance a Car?


Yousaf Jamshed: So for insurance, you have to have the vehicle insured with regular auto insurance and they have from your auto insurance provider, they have what’s called lien holder protection. So the bank just requires them to be stated on the insurance as a lien holder. So assuming the vehicle, there’s a total loss, they are paid out for the remainder of the loan from the insurance first.

Hadeel Hijazieh:

When Financing a Car, Can You Pay it Off Early?


Yousaf Jamshed: Definitely. And that’s, as I mentioned earlier, that’s the beautiful thing about auto loans, that they’re open loans. So you can pay it off earlier. As soon as one payment comes out, you can actually start throwing money at the loan. So effectively reducing your interest, obviously, because when you pay towards a loan, it goes towards the principal amount. And the shorter the duration of your loan, and you can pay it off in full. Most of the banks, they typically want to be paid off in full after six months. Most dealerships in banks will tell you that, to pay it off after six months.

And one thing I was going to say is with the auto loans, it’s nice to have a vehicle on a loan, just because they do depreciate over time. So if you buy a vehicle, let’s say you bought in cash, you’re still technically making a payment on it. You’re just realizing it differently. Just because there’s not a payment coming out of your account, you’re losing money via depreciation and as the car gets older. So ideally what I tell my clients is the best to have the least amount of financial commitment with a vehicle. So you just keep the payments, because you’re time value for your money is most important because if you have $10,000 right now, versus $10,000 in five years. The $10,000 right now, it’s going to be worth more. And if you have any high interest that why don’t you put that money towards that? Or maybe in a mortgage or maybe any investments that you may have. So there’s always good opportunities where you can use your money and you just put a vehicle on the finance, which most people do end up doing, or at least.

Hadeel Hijazieh:

How to Check if a Car is Free of Finance?


Yousaf Jamshed: I assume you are asking if there’s a lien on the vehicle. So with Carfax, they do provide the lien report. So you can go to their website and then put in the VIN number and then see if there’s any liens on the vehicle as well. So that’s something you can go on their website, it’s something you have to pay for, but it will show you that there are no liens on the vehicle.

Hadeel Hijazieh:

Can You Finance a Car For Someone Else?


Hadeel Hijazieh: Doesn’t have to be a family member. Just anyone.

Yousaf Jamshed: Assuming they are co-applicant and most probably it should be fine. So for example, if I come in and one of my friends needs to buy a vehicle, I can co-sign for them, assuming they need me to co-sign. And then they can purchase the vehicle technically. Yeah. But then how that works is as a co-applicant, you are also putting that vehicle on your credit. So it will show that you have a vehicle loan.

Hadeel Hijazieh:

How Old of a Car Will a Bank Finance?


Yousaf Jamshed: Right now. It’s usually 10 model years prior. So 2011 plus financing available. Also, it depends on certain banks don’t finance really old cars. Or they do, but it’s for very short term.

Hadeel Hijazieh:

Can You Finance a Car Under $10,000?


Yousaf Jamshed: Under $10,000? Depending on the bank, they require a minimum amount financed, roughly around 65, $70,000. So assuming that on finances, around that ballpark, you should be able to finance the vehicle.

Hadeel Hijazieh:

How to Finance a Car Through Your Business?


Yousaf Jamshed: t works sort of the same way for business. It might be a few other documentations required, the business statements, accountant prepared statements for last two years of business. Just because it gets recorded differently. It’s not like where you for regular employment, you’re getting a pay stub. And the majority of the times that we do a business loan, there is the co-applicant, being the owner of the business, that applies together.

Hadeel Hijazieh:

My last question is,

Can I Finance a Used Car for 60 month, 72 months or 84 months?


Yousaf Jamshed: So it all depends on the vehicle and different bank programs going on at the time. A majority of the banks will finance 2016s up to say, 60 months in this year, and now 72 months, you have to get 2017 onwards. And they’re 2019, 2020s can be financed up to 96 months too, depending on the bank and obviously on approved credit.

 

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