If you’ve found the new-to-you car of your dreams but don’t have the cash to pay for it in full, financing is the solution. In this post we’ll go over everything you need to know so you can secure the right kind of auto financing for your vehicle and your bottom line.

How car financing works

Taking out a car loan eliminates the stress of coming up with a large sum of money all at once. However, it also adds another monthly payment to your budget, so it’s important to understand the ins-and-outs of car financing before looking at the different lending options.
Your monthly car loan payments are calculated using three elements: principal, term and interest rate. 
Principal is the total cost of the vehicle, including any fees the lender or dealership may have for the car loan and any add-ons you choose.
Term is the length of time that payments will be made on the loan — typical terms range from 36 months to 72 months.
Interest rate is the percentage the lender is charging you to borrow money. 
Fixed rate loans offer predictability because the interest rate stays the same throughout the term of the loan. If you’re less concerned with fluctuations and want to benefit from times when interest rates are lower, you can opt for a variable rate loan.

Borrowing for new and used cars

New and used cars get treated differently by lenders for a few reasons. For starters, new cars have a higher sticker price than pre-owned cars. While this usually means buyers can cash-in on incentives like rebates or 0% financing for a certain period, it also means loan payment terms will be longer and monthly premiums will be higher. Also, new cars are usually more expensive to insure. 
Used cars, on the other hand, cost less to purchase. They do, however, require more upkeep than new cars and interest rates on pre-owned vehicles are usually higher — especially if you don’t have much for a down payment or have less than stellar credit. 
Check out our post for things to consider when deciding whether to buy a new or used car.

Ways to finance a used car

There are two main ways to secure a car loan in Canada: through a financial institution or directly through a dealership. Each route has its advantages and it’s a good idea to shop around to ensure you’re making the best decision for your financial situation. 
Before applying for any loan, it’s a good idea to check your credit rating and determine your budget. Whether high or low, your credit rating will dictate the interest rate on your loan; knowing your budget will help you figure out how much you can afford for monthly payments. If your monthly payments are more than your budget allows, you run the risk of defaulting on your loan and damaging your credit rating.
Figuring out your budget can also help you decide how much you’re able to put forward as a down payment —  a larger down payment often translates to lower rates because you’ll be borrowing less.
Now, let’s get into the differences between bank financing and dealership, or in-house, financing.

METHOD 1: BANK FINANCING

If you have a good credit rating securing a used car loan through a bank or credit union might be the right choice for you. Getting a loan through your current financial institution can be a convenient option since all of your finances are in one spot. If you’re an established customer, your bank might even offer you a discount on interest rates or fees and most banks are open to negotiating the terms of your payment period.
However, because of their stricter rules and regulations, banks will only grant loans to customers with favourable credit — even for pre-owned vehicles. So, if you have a low credit rating you might not get approved. 
Some banks are wary of granting loans for used cars because they depreciate in value quickly. It’s a good idea to ask about the financing options for the specific make and model of the car you’re interested in.
It can also take longer to get approved through the bank, so you might be stuck waiting several business days to find out if your loan application has been accepted.

METHOD 2: IN-HOUSE (DEALER) FINANCING

The second option is to get financing directly from the dealership you’re buying a car from. The main advantages of in-house financing are speed and flexibility. 
Because the application and approval process is a lot quicker, many dealerships are able to offer same-day financing. That means you can take a test drive in the morning and drive your new (or new-to-you) car off the lot by the afternoon. This way you won’t have to worry about someone else snatching up the used car you fell in love with while you’re waiting for financing to come through. 
Dealerships offer significantly more flexibility for borrowers with less-than-stellar or non-existent credit (as is the case with students or new Canadians). If you have poor credit or have gone through a bankruptcy, shopping for a vehicle can be frustrating and disappointing. In-house financing can help get you into the car you want, even if you’ve been previously turned down for a loan through your bank. 
At Birchwood Credit Solutions, we look beyond our customers’ credit rating. Once you apply for financing, our team will review your whole financial situation and work with you to pick an appropriate budget and payment options. We can even offer you help and advice on how to repair your credit rating.
Learn more about Birchwood Credit Solutions’ Bad Credit Car Loans and quick, hassle-free application process. You can also contact us to talk directly to a car financing expert.

Getting a good deal on a new or used car can depend on the time of year you buy it. Make sure you keep an eye on the calendar so you can take advantage of seasonal factors affecting the car trade and take advantage of the best month to buy a car. So if you are looking for the best time of year to buy a car, here are some dates to bear in mind.

Best time to buy a new car

Choosing the best time of the year to buy a car could potentially save you thousands of pounds.

Here’s what to bear in mind:

• Convertibles are more desirable in the summer, so there might be bargains to be had in the winter.
• At the end of each quarter – particularly the end of June and December – dealers might be keen to hit their quarterly sales targets and more likely to offer you a good deal.
• Demand for four-wheel-drive vehicles usually peaks during autumn and winter because of poorer weather, so you might get a bigger discount in the summer.
• In February and August many dealers offer some real bargains, while sales are slow as buyers wait for the new number plates coming in March and September. But If you take advantage of this lull, your ‘old’ number plates will make your car seem older than it really is, so it will depreciate faster.
• Find out when new models or ‘face-lifted’ existing models are due out, then buy the previous version during its last few weeks in the showroom. Dealers will be want to shift this stock and be more likely to offer you a good deal. But remember an older model will depreciate faster than the new arrivals, even though it’s roughly the same age.
• Showrooms are quieter on weekdays so drop in on a Friday – when the dealer will also be keen to meet their weekly target. This gives you an advantage when bargaining with the salesperson.
• Wait a few months after launch before buying a new model – by then there will be less showroom buzz about it so the dealer might well offer you a better deal.

Best time to buy a used car

Seasonal trends in sales of new cars have a knock-on effect on the cost of used cars.

Time your purchase right and you could get a real bargain:

• Avoid buying used convertibles in the spring or summer – wait until winter, when demand is much lower.
• March and September are the peak months for sales of new cars, often through part-exchange deals. So dealers will have lots of used cars to sell, which puts you in a strong position when negotiating.
• Dealers are also often keen to clear out used cars in July and early August in readiness for new models and the registration plate change on 1 September.
• December and January are quiet months for the used car trade. Cars aren’t on people’s minds around Christmas and the New Year so dealers and private sellers are keen to make a deal.
• Buy four-wheel-drive vehicles in the summer – demand peaks in the late autumn and winter because of the poorer weather.