For most people, cars are a big ticket purchase and there are many years of saving and researching involved in the car-buying process. After all, there’s so much to consider, from how much you’re able to spend, to who will be driving it and where, if it’s kid-friendly, and so much more.
Considering that cars typically cost thousands of dollars, it’s difficult for many to pay for cars in full–that’s why car loans and financing cars have increased in popularity. However, while creditors assist you in paying off a vehicle over the course of your predetermined car loan term, you will also be paying additional processing fees and interest rates. Due to the added costs involved in car loan terms, most people prefer to keep their car loan term short and sweet.
Shortening a car loan term can be achieved through a mix of strategies and in the grand scheme of things, bad credit car loans, budgeting, and credit health are all interrelated.
Here at Kitchener Bad Credit Car Loans, we value your hard earned money as much as you do. We’ve identified the most efficient and budget-maximizing methods to get a fair car loan term so you don’t have to do the research!
How Car Loans Work
Car loans are determined between a borrower and the lender. The total amount lent is typically the cost of a car (minus the down payment, if there is one) plus interest charges. The relationship will exist between a car lender and borrower until the loan amount is paid off in full, or in some cases, it will continue if a borrower gets a new car!
Car loan payments are decided before the borrower makes their first payment, and payments are typically made on a monthly basis. The amount of the loan is dependent on the cost of the car, the down payment, and how much a borrower is able to spend monthly. Ideally, borrowers should look to get the shortest car loan possible so that they can avoid extra months of paying interest.
If you’re shopping for a car loan, try to find a car loan deal that suits your financial and personal needs. Some things to look into before settling on financing your car are:
1. Your Down Payment
A down payment is a relatively large sum of money that someone will pay towards a big-ticket item. A down payment is usually used to begin the lender-borrower agreement. Financial advisors typically recommend putting a down payment of 20% Although many lenders prefer to receive a down payment of some sort, it is not required everywhere. For the borrower, putting down as large of a down payment as possible is great as it will shorten your loan term and relatedly, your total interest paid.
2. Interest Charges
“Interest” is a percentage of your monthly loan rate that is added on top of your amount owed to your lender. Interest is charged by all lenders as they would not make any form of profit off of lending otherwise, so you should definitely expect to pay interest on a car loan, but the percentage itself varies. While you’re browsing around for a car loan provider, try to look for an organization offering the lowest interest rates. For example, if you pay $300 a month with an 8% interest rate, your interest alone will be $24, whereas if it is 4%, it will be $12. Interest costs can add up to be a significant sum over time.
The lower the interest rate, the lower your total cost on your car will be!
3. Terms & Conditions
Every car loan and provider will have varying conditions on which your loan will be approved. Before you sign on a car loan agreement, make sure to read through the fine print. Within your terms and conditions, there will be a mix of important factors to take into consideration, including timeframe of the loan, whether accidents or car theft will be covered, as well as additional conditions set in place in the case that car payments are not made one time. If you read your contract carefully and disagree with anything within the terms, you can either dispute it to be changed or work with a different provider that will better suit your preferences.
Tips To Improve Your Credit Health
Although some people have historically opted to improve their credit health with the help of professionals, repairing your credit yourself can be just as effective! We’ve outlined some of the best strategies to build, rebuild, or maintain your credit so that your financial health is better than ever!
Make Regular Bill Payments
If you’ve gone multiple lines of credit, a plethora of bills to pay, plus other life events and appointments to keep track of, it can be easy to forget to make a payment on time. Staying organized and keeping a regular schedule, or using automated payment programs can be incredibly beneficial in ensuring your payments are made regularly! The key is to choose a system that works best for you. In the digital era, many have opted to set online calendar reminders, or work with their local bank to automatically deduct funds from their account to pay off bills.
In the case of a financial emergency, we recommend contacting your creditor to give them a heads up. If you state your case and request for an extension, they may be able to do so. However, it’s important that you don’t abuse this favor as creditors may soon view you to be financially irresponsible.
Your credit score is actually determined on five different factors:
1. Payment history
2. Types of credit
3. New credit
4. Length of history
5. Amount owed
Payment history usually accounts for approximately 35% of your credit score– just making regular payments can make a huge impact on your overall credit score!
Limit Your Credit Utilization
Credit Utilization is a essentially a ratio of how much of your credit you’ve spent compared to what your credit limit is. It is often referred to in percentage form, and can significantly impact your credit health for better or worse.
Creditors like to look at individual’s credit utilization as a measure of their financial responsibility. If someone has a credit limit of 5000 but spends $4999 monthly, it won’t look too good in the eyes of creditors. Spending all of your credit is interpreted as being irresponsible–even if you are able to pay it all off. If you find that you’re able to, and it’s necessary to spend that much money monthly, then you should look into increasing your credit limit so your credit utilization ratio will be healthier.
Financial advisors typically recommend having a maximum credit utilization of 20%– if you have a limit of $10,000, try your best to spend no more than $2000.
On average, credit utilization makes up 30% of your overall credit score. Maintaining a healthy credit utilization ratio is an easy way to improve your credit health quickly.
In the case that you need to use a large portion of your credit card limit for a big-ticket item, you don’t have to be worried if you work quickly to pay it off. If you paid $3800 on an item, and your limit is $4000, try to pay off your balance before your credit card provider reports your balance to credit bureaus. If you do so, your credit score won’t be affected at all.
Create Positive Credit
The best way to combat bad credit is to develop positive credit. You can achieve positive credit in many ways, from creating a healthy credit mix with new credit lines, credit cards, or loans. We recommend applying for a secured credit card. With a secured credit card, you can pay a deposit matching your card’s credit limit, so if you skip payments, your lender can cover your owed amount without any issues.
Another way to build positive credit is through a bad credit car loan. If you make regular car loan payments, your payment history score will increase and ultimately your total credit score.
Work with The Right Car Loan Providers
At Kitchener Bad Credit Car Loans, our top priority is to put our clients and their needs first. From start to finish, our dedicated staff will be available to support you through the car loan process.
We also understand that everyone has different levels of financial health, and for different reasons. We strongly disagree with other creditors’ approach of rejecting applications just because an individual has poor or zero credit health–especially when circumstances are unknown! For that reason, we will work with all levels of credit and make sure you get the best deal Ontario has to offer.
Our team members will tirelessly negotiate with Canada’s top banks to ensure you get the best possible rates on your bad credit car loan in Scarborough. After your application has been approved, we will help you select a car specific to your personal and financial needs. We offer a selection of over 7000 certified used and new cars, so you can be sure you’ll find a ride that you absolutely adore.
To prove our dedication to you, we’ll even deliver your brand new car straight to your door at no cost– just tell us where and when! Plus, upon receiving your car, if you don’t think its the best fit we will exchange the vehicle within 30 days.
If you’re looking to switch out of a car loan term, or establish a new car loan term, work with car loan providers that care about YOU! If you want to work with a company that eliminates all of the complexities involved in car loans, prioritizes you, and will ultimately get you on the road as quickly as possible, contact us today.