MANY MISCONCEPTIONS ABOUT AUTO FINANCING: LET'S SET THE RECORD STRAIGHT!
- It is easier to get a car loan for an old, inexpensive vehicle than for a newer, much more expensive one!
Not true! A newer vehicle is often easier to finance than an older one because it is better collateral for the bank. In fact, with a new, guaranteed vehicle like a certified pre-owned, the bank assumes that I won't have to pay for costly repairs that would prevent me from paying my loan. The opposite is true with an old vehicle, which will likely require endless repairs or end up on the scrap heap before payments are made. For this reason, an older vehicle is often financed with an unsecured personal loan, which is less advantageous.
- If I turn down a dealer's overpriced financing offer and apply elsewhere, my credit will be doubly damaged.
Not true! The Equifax and TransUnion credit bureaus consider multiple financing applications in a very short period of time to be a "single" application for the purchase of a single vehicle. They understand that I'm in shopping mode. By the way, a serious credit analyst will always submit a credit application to multiple institutions to get the best rate on the market. In the same way, it's perfectly appropriate to negotiate with 2 dealers to get the best possible deal. Let's say it's like a personal bidding war!
- It's suicidal to get a car loan when my credit history is very bad: Wrong and true!
False and true! A car loan is an effective way to quickly improve my credit score. To do this, I need to choose a car loan that fits my budget so that I can pay it back on time "all the time". After about 2 years, my credit rating will have improved and I'll be able to get a new loan at a better rate.
That's true! But if my credit score and credit history are very bad, and the interest rates offered to me as a 2nd or 3rd chance are high (around 24%, for example), I run the risk of sinking deeper into poverty. Some credit cards are specifically designed to help improve your credit score and are more flexible than a car loan. It would be wise to start there. As my credit improves, I'll be able to get financing at a less suicidal rate.
- A pre-approval request for a car loan always affects a credit file.
Not true! A pre-approval is a simple verification, not an official loan application. It does not affect my credit file in any way. A credit pre-approval is useful for quickly determining if I'm eligible and under what conditions. It allows me to find out, often within minutes, if I can finance the vehicle I want!
- It's almost impossible to get a car loan after bankruptcy or consumer proposal.
Not true! Not only is it possible to get a car loan, it's often easier. Here's why: A bankruptcy or consumer proposal means that I've taken control of my finances so I'm no longer over-indebted! Banking institutions believe that the chances of my loan being repaid according to the terms of the contract are better than before because there's less financial pressure, which makes sense. What's more, thanks to the insolvency advisor I consulted, I now know more about managing personal finances and the risks of credit!