If you are dealing with dinged credit, an auto loan can be a great way to get it back on track. But you need to be careful. There are some auto loan financing mistakes you can make that can end up further damaging your credit. In order to avoid any missteps, don't make these mistakes when financing a car with less than perfect credit.
1. Not Being in the Know with Your Credit
You shouldn't begin without knowing what is on your credit reports and what your credit score is. When you start the process in the dark about your credit, you let them define your creditworthiness. It's much better to come in knowledgeable so you can be upfront about your situation.
Every consumer can get a free copy of their credit report from each of the two major credit bureaus (Equifax and TransUnion) every 12 months. You can carefully look them over for errors you can dispute and to get a feel for where you stand.
There are also several ways you can check your credit score. Some banks provide them to account or credit card holders for free. Other third-party websites can give you a look at one of yours. But if you want them directly from the credit bureaus, you have to pay a fee.
2. Only Looking at Your Monthly Payment Amount
In recent years, there has being a growing amount of auto loans with extended terms of six years and longer in Canada. Extending the length of your auto loan makes your monthly payment lower, which sounds good, right?
Actually, this practice can be very costly for people are who are unable to qualify for a low interest rate. When you extend your loan term, more interest charges accumulate over the course of the loan. Therefore, extending your term to receive a lower monthly payment will actually make the loan cost much more in the long run.
Instead of only concerning yourself with the monthly payment amount, you need to consider the total cost of the loan. You are in control when it comes to setting the loan term. The shorter you make, the lower the total cost of the loan will be.
3. Stretching Your Budget Too Thin
At the same time, you still need to get a vehicle with a payment that your budget can manage comfortably. Life is too unpredictable, so you don’t want to stretch your budget too thin when you add a car to the mix.
Properly budgeting for a car purchase means accounting for all of the expenses that come with car ownership while leaving yourself some wiggle room. Additional expenses to consider include:
Make sure to factor in these kinds of expenses into your budget. A good rule of thumb: your car and insurance payment (combined) shouldn't exceed 15-20 per cent of your take home pay.
Auto Financing Done Right
If you go into the process prepared, a poor credit car loan can be an excellent credit-building tool. It should be able to start you on the path to improved credit, while also providing you with the transportation you need. Make sure to avoid mistakes like these to make that happen.
However, not every dealership or lender can get you approved for an auto loan when your credit is dinged. But Canada Auto Loan is here to help. We can quickly match you with a local dealership that specializes in working with all kinds of credit.
Our process is fast, free and discreet and you are under no obligation to purchase anything. Get started today by filling out our simple online auto loan request.