Canadian Car Financing Tips

Car Loan Tips

How much can you afford to pay for a new car? Should you finance at the dealer or get a car loan from a local bank or credit union. Financing a new car purchase requires some research if you want to get the best rates and lower your monthly payments. Before venturing out to the car dealerships uninformed, let's take a look at what you will need to know about the process.

Financing a new car purchase requires some research. Before venturing out to the car dealerships uninformed, let's take a look at what you will need to know about the car buying process.

First of all, about 70% of all new car purchases are financed. So unless you plan on paying cash for your new car, or you are going to apply for a car loan, chances are you will be financing your purchase.

1. Determine your financial situation

This is the first and most important step in the car buying process. You must know how much you can spend before you can determine what you can afford. You don't want to get stuck making a huge car payment that will leave you eating macaroni and cheese for years to come.

First of all, you need to have a monthly budget. This is very easy to calculate. Add up all of your fixed monthly expenses, such as your rent/mortgage, phone bill, etc. Subtract that from your net income. Then subtract your estimated extraneous expenses, such as food, gas, entertainment, whatever. The result should be an amount of money you have left over to cover your car loan payments.

From that, you need to remember that buying a car involves more than a down payment and monthly payments. In your budget you will need to include monthly insurance costs, gas and maintenance.

Once you have all of this worked out, you should have a ballpark figure of the budgeted amount you can use for car payments. A good rule of thumb is roughly 20 percent of your net income can be used for a car payment. Once you determine that figure, stay with it.

2. Decide which type of vehicle you want

Now that you have settled on a monthly allotment, now you can look at which vehicles fit into your price range.

This is really about personal choice, but a good criteria to go buy is to look at what your needs are. Do you have a family? There are plenty of affordable, safe and reliable minivans and station wagons on the market. Single and commute, or do a lot of city driving? The compact segment has a wide range of models to choose from that boast handling and superior gas mileage.

Also consider your wants. Compact cars get really good gas mileage and are a great if you want to save money on the increasing gas prices. Plan on taking road trips? Consider something that gets good mileage and has cargo space and lots of cup holders.

Once you've narrowed your choices down to a couple, it's time to do some car research.

3. Apply On-Line and get Pre-Approved for your Loan

Submit an online credit application and get pre-approved for auto financing. We will then contact you with the amount you have been approved for, the interest rates you qualify for and the terms of the loans offered. If you had decided on a minivan for example, then now you can begin looking at the year, make and model that your loan amount will cover.