Particularly amid a sprawling metropolitan landscape such as the Greater Toronto Area, taking out a loan and purchasing a car is one of those more “acceptable” sources of debt. Taking out automotive financing doesn’t necessarily mean taking out the most disadvantaged, financially burdensome loan out there.
For all the time spent by Toronto shoppers seeking the best vehicle deals, finding the best loan too often becomes a back-burner objective. Why should it, though? If it’s a big enough, important enough expense to merit a loan, that makes it big enough and important enough to merit taking out a loan with the lowest possible overall cost.
Let us take the wheel and guide the shopping for just a bit…
- WHAT DOES IT REALLY COST?
Sure, take into account how much you’re borrowing. You can always control that by seeking out the most practical, cost-effective and reliable vehicle on any lot. Just know that it’s the varying-daily annual percentage rate (APR) that generates the building interest which makes up the greatest cost of the loan when paired with the overall term.
The best loans combine a lower-end interest rate – say, around 5 per cent – with a shorter term that carries a higher payment each monthly but builds up less interest. When possible, take a three-year loan over a five-year one. At 6.5 to 7.0 per cent interest, the difference in interest between 36 and 60 months can mean thousands saved and more time before the vehicle builds its equity.
- GOOD LOAN HUNTING IS WHERE YOU FIND IT
Whenever possible, avoid dealer financing. Putting your final cost in the dealership’s hands severely waters down your bargaining position.
Instead, go after a guaranteed auto loan that you can take anywhere you choose. That way, you can always threaten to walk if you don’t dig the dealer’s deal and also avoid the possibility of confusing financing costs and the actual vehicle price. Always do your homework on rates nationwide beforehand and be ready to use what you learn to contest what the dealer may offer you.
Banks are great starting places for hunting down a loan, but expect conservative lending guidelines and requests for references, but also competitive rates for qualified borrowers, especially if you happen to already be a customer. On the other hand, credit unions lend more exclusively to only their members, but being nonprofit, they can lower their operating costs more effectively than commercial banks and offer exceptional interest rates.
Taking out an auto loan can be a “big” debt that demands a sizeable commitment and probably some budgeting sacrifices. It just might not have to be as long-term a debt as you might be thinking. Thousands of dollars is thousands of dollars either way. That being said, there are ways to keep that hit manageable and, provided you make all payments on time and keep interest to a minimum on the shortest-term loan reasonably possible, a rewarding boost to your credit history.