Car Deal Canada

Tips For First-Time Car Buyers Looking For Financing

Tips For First-Time Car Buyers Looking For Financing

Buying your first car is an exciting milestone, but it can also be daunting when you start navigating financing options. This comprehensive guide will walk you through everything you need to know as a first time car buyer in Canada – from what first time buyer financing is, to tips for getting approved, common mistakes to avoid, and key questions to ask. We’ll outline the different financing options available, recommended credit scores and down payments, average interest rates, and provide pros and cons to help you make the best decision. Use this guide as your roadmap for getting the right first time buyer financing so you can start building credit and get behind the wheel of your new ride.

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What is First Time Car Buyer Financing?

First time car buyer financing refers to special auto loans offered to those with little or no credit history. These loans are designed for people who are purchasing their first vehicle and have not previously had an auto loan or established credit.

First time buyer financing offers more flexible terms compared to traditional auto loans. Lenders provide lower down payment requirements, often as low as $0 down. They also offer longer repayment periods up to 84 months so the monthly payments are more affordable.

The key benefit of first time buyer financing is it helps first timers build their credit. By making all their payments on time, it establishes positive payment history and helps raise their credit score. This makes it easier to get approved for future loans at better rates.

Overall, first time buyer financing gives those new to credit access to affordable auto loans. It provides the opportunity to purchase and finance a reliable vehicle while building their financial profile at the same time.

 

First Time Car Buyer Financing Options

When shopping for your first auto loan, you have several financing options to consider:

 

Loans from Banks and Credit Unions with First Time Buyer Programs

Many banks and credit unions offer special auto loan programs designed for first time buyers. These programs provide more flexible terms like lower down payments and longer repayment periods. They understand that you need to build credit, so they are willing to take on a bit more risk. Be sure to check community banks and credit unions, as they tend to offer the most first time buyer friendly financing.

 

Manufacturer Incentives Like Rebates for First Timers

Some auto manufacturers provide special rebates and incentives that can lower a first time buyer’s cost. For example, Toyota offers a $500 rebate to first time buyers on select models. Ask the dealer if there are any current incentives that you qualify for to help make the vehicle more affordable.

 

Dealer Financing from Places Like Enterprise Car Sales

Large car dealerships like Enterprise Car Sales have programs in place to help first time buyers with flexible financing options. They have access to lending sources tailored to first timers. Enterprise even offers a 7 day buyback policy, allowing you to return the vehicle if you change your mind.

 

Online Lenders Like AUTOPAY

There are online lending companies like AUTOPAY that cater specifically to first time auto buyers. The online application process is quick and easy. AUTOPAY says they can pre-qualify customers in minutes for up to $30,000 in financing. Online lenders expand your financing options beyond just local banks and dealers.

 

What Credit Score is Needed?

When applying for first time car buyer financing, one of the most important factors lenders look at is your credit score. This three-digit number gives lenders an idea of how reliably you’ve repaid debts in the past, and can greatly impact the loan terms and interest rates you’ll qualify for.

In general, it’s recommended that first time buyers aim for a minimum credit score of 660 before applying for auto financing. This is considered the start of “prime” credit, where you’ll qualify for the best rates. Those with scores below 660 may still get approved, but will see higher interest rates.

Most lenders today use a FICO credit score when evaluating auto loan applications. FICO is the industry standard scoring model, with scores ranging from 300-850. There are actually many different FICO scores tailored to specific types of lending, and auto lenders often look at your FICO Auto Score when underwriting loans.

The higher your credit score, the better the loan terms will be. Those with scores above 700 are considered excellent credit risks and will qualify for the lowest available interest rates from most lenders. First time buyers should check their credit reports ahead of time and take steps to boost their scores if needed before applying.

 

How Much Down Payment is Needed?

When buying your first car, a down payment of 20% is generally recommended but not always required. Some special first time buyer financing programs will offer loans with little to no down payment. However, the lower your down payment, the higher your monthly payments will likely be.

Putting 20% down shows the lender you are financially committed to the purchase and have skin in the game. It also lowers the amount you have to finance, keeping monthly payments more affordable. With a $20,000 vehicle purchase for example, 20% down would be $4,000.

That said, some first time buyer financing options are designed for those with limited savings. Programs through credit unions or community banks may only require 5-10% down. Online lenders like AUTOPAY even offer loans with $0 down for qualified borrowers.

Just keep in mind, that down payment directly impacts the monthly payment. With $0 down on a $20,000 car, you’ll be financing the full $20,000 plus interest and fees. Even an extra $1,000 down can make payments more manageable.

First time buyers should aim to put down as much as they’re comfortably able to. This gives you equity in the vehicle right away and ensures payments align with your budget.

 

What is a Good Interest Rate for First Timers?

When financing your first vehicle purchase, interest rates tend to be higher compared to someone with an established credit history. This is because lenders view first time buyers as riskier borrowers since they don’t have a proven track record of repayment yet.

For first time car buyers, average interest rates typically fall between 11-21%. This is noticeably higher than the average rates for those with good credit, which can be as low as 3-5%. Rates for first timers also tend to be near the rates for those with poor credit histories.

The exact interest rate offered to you as a first time buyer will depend on factors like your credit score, down payment amount, loan term, and the lender. Those with credit scores on the higher end of the scale will qualify for rates toward the lower end of that 11-21% range. Going with a larger down payment and shorter loan term can also mean a lower interest rate.

It’s important to shop around with multiple lenders and compare interest rates. Look at banks, credit unions, and online lenders to find the most competitive rate based on your specific financial profile. While rates may be higher as a first timer, significant savings are still possible by comparing options.

 

Tips for Getting Approved

Getting approved for first time car buyer financing can seem daunting, but being prepared and taking the right steps can help ensure your success. Here are some tips to boost your chances of getting approved:

 

Have steady income to show ability to repay

Lenders want to see that you have a reliable source of income to confidently pay back the auto loan. Having steady employment for at least 6 months to a year is recommended. Provide recent pay stubs to verify income.

 

Apply with credit union or community bank

Smaller financial institutions like credit unions and community banks are often more willing to work with first time buyers. They may offer better rates or more flexible loan options. Start your search for financing here.

 

Consider having a cosigner if possible

Adding a cosigner with good credit to your loan application can improve the chances of getting approved and securing better terms. This is someone who agrees to be responsible for repaying the loan if you can’t. Choose a cosigner wisely and make sure you can uphold the payments.

 

Know the payment fits within your budget

Before applying, determine if the monthly payment fits comfortably within your budget. Include insurance, gas, and maintenance costs too. Having the financial means to make on-time payments is key to building your credit history successfully.

 

Mistakes First Time Buyers Make

When buying their first car, it’s easy for first time buyers to make mistakes that end up costing them more in the long run. Here are some of the biggest mistakes to avoid as a first time car buyer:

 

Not checking credit reports for errors first – Before applying for an auto loan, it’s critical to check your credit reports for any errors. Incorrect information can significantly bring down your credit score. First time buyers should get free copies of their credit reports from Equifax and TransUnion and dispute any errors. This helps ensure you have the highest score possible when applying.

Applying at too many places which dings credit – Every application for credit results in a hard inquiry on your credit report, which causes a small drop in your score. First time buyers eager for approval often apply at many lenders, hurting their credit. Limit applications and compare rates pre-qualification instead.

Focusing only on monthly payment – It’s tempting to only consider the monthly payment when evaluating a first auto loan offer. But first timers should also understand the loan’s total cost including interest charges over its full term. A loan with a lower monthly payment could end up costing thousands more in interest.

Not understanding loan terms and total cost – Before signing any first time buyer financing contract, it’s essential to read the fine print and ask questions. Know the total loan amount, interest rate, monthly payments, fees, down payment needed, and early payoff penalties. Don’t agree to a loan you don’t fully understand.

 

Pros of First Time Buyer Financing

There are many advantages to using a first time buyer auto financing program. Here are some of the biggest pros:

 

Build Credit History

One of the best perks of first time buyer financing is the ability to establish credit history. Making regular on-time payments helps build your credit score over time. This makes it easier to get approved for loans and other credit products in the future at better rates.

 

Lower Interest Rates Than Alternatives

While first time buyer rates may be higher than those with established credit, they are generally lower than other financing options for those with no credit like “buy here pay here” dealers. First time buyer programs offer more competitive interest rates that make purchasing a vehicle more affordable.

 

Flexible Terms

Lenders often provide more flexible terms to first time buyers compared to standard auto loans. This can mean lower down payments, longer repayment periods, and no penalty for early repayment. The flexible terms make getting approved and managing payments easier.

 

Potential Incentives

Many lenders and manufacturers offer special incentives just for first time buyers. These can include things like rebates, deferred first payments, and discounted fees. The incentives provide savings upfront, making the buying process more affordable.

 

Cons of First Time Buyer Financing

While first time buyer financing can be a great option to get into your first vehicle, there are some potential downsides to consider as well:

 

Higher interest rates than established buyers – Since lenders view first time buyers as higher risk, interest rates are typically much higher than for those with established credit histories. First time buyer rates can be between 11-21%, while those with good credit may see rates of 3-7%.

Potentially large total loan cost – With higher rates and longer terms, first time buyers can end up paying thousands more in interest over the life of the loan compared to a buyer with better credit.

Risk of damaging credit if payments missed – Missing payments can quickly damage your credit score since first time buyers have little credit history to start with. This can make improving your rates difficult down the road.

Strict loan approval requirements – First time programs often have strict requirements around income, down payment, and cosigners. Not meeting those criteria can make getting approved difficult.

 

Alternatives to First Time Buyer Financing

While financing can help first time buyers get into a vehicle, it does come with drawbacks like interest charges and loan requirements. For some buyers, alternative options may be better suited:

 

Save up to pay with cash

The most cost-effective option is to save up enough money to purchase the vehicle outright in cash. This avoids financing charges, though it does require having the full funds upfront. Setting up an automatic savings plan over several years can make this achievable.

 

Buy used vehicle outright

Opting for a used car that costs significantly less than a new one means it may be possible to pay for it fully in cash. This still provides the benefits of ownership without financing. Shoppers should research pricing guides to find a quality used vehicle within their budget.

 

Use public transit/ridesharing

For some buyers, public transportation like buses, subways, and commuter trains allow getting around without a personal vehicle. When needed, ridesharing through services like Uber provide on-demand rides. This avoids both a car payment and related costs like insurance.

 

Borrow family member’s car

If family or friends have an extra vehicle, offering to borrow it or share it can provide transportation without the cost of financing. This works best as a short-term option, with clear agreement on expectations.

 

Questions to Ask When Applying

When applying for first time buyer financing, make sure to ask the lender or dealer the following questions:

 

What is the interest rate and term length? The interest rate and loan term length are key factors that determine your monthly payment amount. Get the specifics on the rate and term options for the loan program.

Are there any fees or charges? In addition to interest, lenders may charge origination fees, documentation fees, or other charges. Ask for a full breakdown of costs.

How will missed/late payments affect my credit? It’s important to understand the consequences of missing payments as a first time buyer. This can damage your credit score making future loans more expensive.

What incentives are available? Many lenders offer discounts or incentives for first time buyers like reduced interest rates. Be sure to ask about any available incentives that can lower your overall costs.

 

Shopping Tips for First Time Buyers

When you start shopping for your first car, it’s important to be prepared and know how to get the best deal. Here are some key shopping tips for first time buyers:

 

Get preapproved before visiting dealers

Getting preapproved for financing from a bank, credit union, or online lender before going to the dealer gives you leverage to negotiate and know your budget. Dealers make a lot of their profit from financing, so if you already have financing they may be willing to give you a better price on the car.

 

Compare multiple lender rates

Don’t just go with the first lender you find. Shopping around and comparing rates from several banks, credit unions, and online lenders can save you thousands on your loan. Having multiple preapprovals gives you negotiating power.

 

Negotiate final price including fees

Negotiate the final “out-the-door” price, not just the monthly payment. Fees like documentation fees can quickly add hundreds of dollars. Know what you should pay for the car, research fair fees, and be prepared to negotiate.

 

Read all paperwork carefully before signing

Don’t let yourself get rushed into signing. Review the contract thoroughly and make sure it reflects what you agreed to verbally. Check the interest rate, fees, down payment, and monthly payment amount before signing anything.

 

Conclusion

Getting auto financing for the first time can seem daunting, but being prepared and doing your research can set you up for success. This guide covered the key things first-time buyers need to know, from what credit score is recommended to tips for getting approved. While first timer rates may be higher, there are lenders willing to work with those just starting to build credit.

The most important takeaways are to check your credit reports for errors first, shop around for the best rates, understand all the loan terms, and make sure the payment fits comfortably within your budget. While having an established credit history helps, you can still get approved as a first time buyer with limited credit by finding the right lender, having some money for a down payment, and showing you have the income to manage the monthly payments.

Buying a first car is an exciting milestone, but also a large financial decision. Going in informed and prepared with realistic expectations will lead to a smoother process and better outcome. Do your research, ask questions, and choose the financing option that works best for your situation.

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Questions About Getting Financing as a First-Time Car Buyer

As a first time car buyer in Canada, it’s important to do your research ahead of time. Here are some tips:

 

– Get pre-approved for an auto loan so you know what you can afford. Many banks and credit unions offer special rates for first time buyers.

 

– Set a realistic budget. Factor in car payments, insurance, gas, maintenance and repairs. Avoid spending more than 10-20% of your monthly take home income on your car expenses.

 

– Check out dealer incentives for first time buyers. Some dealers offer discounts or manufacturer rebates to help lower costs.

 

– Consider buying a used vehicle to save money. Let someone else pay for the initial depreciation. Stick to certified pre-owned vehicles still under warranty.

 

– Bring along someone knowledgeable to help negotiate. Don’t be afraid to shop around between multiple dealers to get the best price.

 

– Inspect the vehicle thoroughly before buying and test drive it. Have it looked over by a trusted mechanic. Check vehicle history reports for accidents or issues.

Most lenders in Canada require a minimum credit score in the fair to good range in order to qualify for auto financing as a first time buyer. Here are some general credit score guidelines:

 

– 600-660 – You may be approved but will pay higher interest rates due to poor credit risk

 

– 660-699 – Approval is likely with fair/average rates

 

– 700+ – Preferred rates for those with good credit history

 

The higher your credit score, the lower your interest rate will likely be on your auto loan. Having at least 660 improves your chances considerably. If your score is under 600, you may need to apply with a subprime lender or consider rebuilding credit first.

As a first time car buyer in Canada, you typically need a minimum down payment of 5-10% of the vehicle purchase price. However, a down payment of at least 20% or higher is recommended whenever possible for the lowest financing rates.

 

For example, on a $20,000 vehicle purchase price, you’ll likely need:

 

– Minimum $1,000 (5% down payment)

– Recommended $4,000 (20% down payment)

 

The more money you put down upfront, the less you have to finance, saving on interest charges over the loan term. Having a larger down payment also improves loan approval chances.

If you have bad credit as a first time car buyer in Canada, here are some options that may help you qualify for an auto loan:

 

– Apply with subprime lenders that focus on bad credit borrowers

 

– Get a cosigner with good credit to co-sign the loan and improve approval odds

 

– Consider applying for secured car loan that uses your vehicle as collateral

 

– Work on rebuilding credit for 6-12 months before applying to improve your score

 

– Save up a larger down payment of at least 20-30% to offset credit risk

 

Having a steady income, down payment, and some credit history can help first time buyers with bad credit find financing despite past mistakes. Shop multiple subprime lenders to compare interest rates.

Some of the best first time car buyer programs in Canada are:

 

– Scotia Momentum Program from Scotiabank offers discounted interest rates and flexible terms tailored to first time buyers.

 

– RBC Start Right Program from Royal Bank features online tools, customized financing options and advice for new buyers.

 

– CIBC Auto Finance Program provides preferred rates and extended financing terms to help those buying their first car.

 

– TD Auto Finance First Time Buyers Program offers flexible financing, educational tools and rebates for eligible new buyers.

 

These major banks offer the size and resources to provide significant discounts off standard rates to give first vehicle buyers extra assistance. Compare incentives before deciding on the best loan program.

Financing for first time auto buyers in Canada typically involves taking out a car loan from a bank, credit union or other lender. Here is an overview of how it works:

 

– Get pre-approved for a loan to see potential rates/terms and confirm affordability

 

– When buying a vehicle, apply for dealer financing or use your pre-approval

 

– If approved, sign a financing contract agreeing to loan amount, interest rate, payment schedule

 

– Make a down payment to lower amount financed; pay sales taxes and fees upfront

 

– Loan term is typically 4-7 years for new buyers; monthly payments pay off remaining balance plus interest

 

Understanding the breakdown of sale price, trade-in value, taxes/fees, down payment amount, and financed amount is key to good financing as a first timer.

As a first vehicle buyer in Canada, having these documents ready will help speed up the financing and purchasing process:

 

– Proof of income – Recent pay stubs, tax returns, bank statements

 

– Proof of address – Mortgage or rental documents with your name

 

– Proof of auto insurance – Insurance quote documents

 

– Driver’s license – Photo ID with current home address

 

– Down payment – Bank draft, money order, or confirmation of funds if paying cash

 

Having proof you can afford payments, are insurable, and have funds available shows lenders you are financially responsible. Confirm all paperwork is current before starting your purchase.

Getting an auto loan with no credit history as a first time buyer in Canada can be challenging but is possible. Some tips that can help you get approved include:

 

– Apply with alternate data lenders using less traditional criteria beyond just credit scores

 

– Provide extensive proof of income and confirm you have a stable, decent-paying job

 

– Make a larger down payment of 25-30% to demonstrate you’re invested financially

 

– Bring in a cosigner like a parent or family member with good established credit

 

– Apply for a secured loan using the vehicle’s value as collateral you could lose if payments are missed

 

Having solid evidence you can handle payments even without credit goes a long way in improving initial approval odds for those new to borrowing.



The average interest rate on new auto loans for first time buyers in Canada typically ranges between 5-12% based on applicant creditworthiness.

 

Those with great credit scores over 720 can qualify for rates around 5-7% with prime lenders. Average credit in the 660-719 range will see average rates of 7-10% approved.

 

Subprime borrowers under 660 may pay up to 12% or higher with specialized lenders that take on greater risks. Shop multiple lenders to compare rate offers. Paying points to buy down rates is also an option.



As a first time auto buyer in Canada, here are some tips to negotiate the best possible deal:

 

– Research prices online for the specific make, model and trim you want so you know what constitutes a “good” deal

 

– Get pre-approved financing from your bank or credit union so the dealer knows you’re serious

 

– Be ready to walk away if you don’t receive a reasonable offer or feel pressured

 

– Negotiate the vehicle price, trade-in value, financing rates and additional fees separately

 

– Ask about any undisclosed dealer incentives or rebates that may be available

 

– Time your purchase right and shop end of month or quarter when salespeople are more motivated

 

Knowledge is power, so do your homework heading into negotiations. Stick to targets that work for your budget.

Some common fees first time vehicle purchasers in Canada should be aware they may need to pay when buying include:

 

– Taxes – Provincial/territorial sales taxes, federal GST, air conditioner tax

 

– Registration fees – Costs to register and license the vehicle locally

 

– Dealer fees – Documentation or administrative fees charged by the dealership

 

– Lien registration – Cost for registering vehicle security interest

 

– Safety and emissions testing – If vehicle needs to be certified before registration

 

While taxes and registration costs are mandatory, other fees like documentation charges are negotiable. Know what’s truly non-optional so you don’t overpay.

The only mandatory auto insurance coverage required by law for first time buyers across Canada is basic public liability and property damage. This includes:

 

– Bodily Injury Coverage – For injuries to other people, at least $200,000 minimum

 

– Property Damage Coverage – For damage to property, at least $200,000 minimum

 

All other coverage like collision, comprehensive, uninsured motorist protection, accident benefits, etc. are optional based on your province. However, lenders often require more to secure their financial interest in your vehicle.

As a high risk first time auto buyer in Canada, here are some tips to get cheaper car insurance rates:

 

– Take advanced defensive driving courses for safety improvement discounts

 

– Buy vehicles with more safety features and anti-theft devices for potential premium reductions

 

– Ask about usage-based insurance plans with rates based on actual driving habits

 

– Bundle home and auto insurance policies with the same provider for multi-line discounts

 

– Raise your deductibles for comprehensive and collision coverage to lower base rates

 

– Compare quotes from both standard and non-standard insurance companies

 

Letting insurers compete for your business with quotes rather than just accepting renewal notices can lead to major savings on premiums as well.

Some of the most affordable vehicles to insure for first time buyers in Canada due to size, safety ratings, claims history and average repair costs include:

 

– Honda Civic

 

– Toyota Corolla

 

– Hyundai Elantra

 

– Subaru Impreza

 

– Kia Forte

 

– Nissan Versa

 

– Chevrolet Spark

 

– Ford Fiesta

 

Sticking with 4-door models under $25,000 brand new with decent gas mileage and advanced safety tech pays off long-term in lower comprehensive premiums.

As a first vehicle buyer in Canada, a good rule of thumb is to budget $100-150 per month for fuel costs under normal driving conditions. However, this can vary significantly based on these factors:

 

– Vehicle gas mileage – More efficient models need fewer fill-ups

 

– Type of fuel – Premium grades cost more than regular at the pump

 

– Distance driven – Longer commutes and road trips increase costs

 

– Local gas prices – Prices range across different cities and regions

 

Purchasing a fuel efficient vehicle and modifying driving habits to conserve gas can help minimize expenses. But always leave room in your budget for fluctuating energy prices that can quickly alter your monthly fuel outlay.

Some tips to avoid excessive or hidden dealer fees as a first vehicle purchaser in Canada include:

 

– Negotiate documentation/admin fees out of the purchase price – These are not mandatory costs

 

– Read all paperwork closely before signing to identify unwanted add-ons

 

– Get quotes and estimates in writing first before committing to anything

 

– Decline extras like extended warranties, rustproofing, detailing not in your budget

 

– Bring your own financing so the dealer can’t tack on points in rate offers

 

Being vigilant about questioning each and every major line item and fee is key to avoiding padding charges simply meant to inflate dealer profit.

Some important questions first time auto buyers should remember to ask the Canadian dealer include:

 

– Do you have any purchase rebates or incentives I may qualify for?

 

– What are all the fees you charge beyond just taxes and registration?

 

– Can you provide detailed information on the vehicle history and any past issues?

 

– Will there be any pre-delivery inspection or certification fees?

 

– What warranty coverage comes included on the vehicle at no extra cost?

 

– Are there any hidden dealer reserves still available to lower the price?

 

Don’t be afraid to request clarification or more detail on every component of the transaction. Making informed decisions leads to better deals.



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