The Dealer: Seven steps to financing your next vehicle
When buying a car, an important consideration is how it’s going to be paid for. If you are among the approximately 80 per cent of buyers who finance or lease their vehicles (as opposed to paying cash), here are seven key points to keep in mind when buying from a registered new car dealer:
1. Establish a realistic budget. The costs of owning and operating a vehicle can vary widely. Avoid the temptation of choosing a vehicle and options that aren’t critical to your driving habits and lifestyle, and don’t forget to factor in gas, maintenance, insurance, depreciation and borrowing costs. These should all be included in determining your budget.
2. Know your credit score. A credit score is a number based on a person’s repayment history (re: mortgage, personal loans, lines of credit, etc.) and is used to determine creditworthiness. If you have poor credit history, it doesn’t necessarily mean that you can’t be approved for a car loan; it means you may pay a higher interest rate than someone with a good credit score. Consumers can obtain a free copy of their credit report by mail (or online at a modest fee) from the two main credit bureaus in Canada: Equifax Canada and TransUnion Canada.
3. Talk to the Business Manager at your dealership. One of the roles of a Business Manager is to present customers with products that are meant to protect their investment and add value to the ownership experience. The Business Manager will review which products present the best value, based on each customer’s driving habits and lifestyle needs. Shoppers should be prepared to discuss multiple products, such as credit insurance, extended warranties, anti-theft devices and appearance protection packages and payment options.
4. Understand the role of the Business Office. There is an administrative side to the business office that also needs to be understood. In addition to offering products and services, the business manager reviews the customer’s credit application and credit report with the finance source, negotiates the finance rate and the terms that best meet the customer’s needs. He/she oversees all other financial arrangements and compliance-related issues and prepares the delivery documentation, including the preparation of the loan documents, Ministry of Transportation (license plates) paperwork and other legal forms required by the province.
5. Consider dealer (manufacturer) financing. In recent years, auto manufacturers have been aggressive with financial incentives. Zero per cent interest rates, cashback offers and rebate programs have made owning a car affordable for thousands of Canadians. In many instances, interest rates and other financial incentives offered by automakers are more competitive than rates offered by banks and financial institutions. When considering manufacturer financing, buyers should understand the terms of the offer, such as the down payment requirement, length of the loan, cost of borrowing, what models the offer applies to, etc.
6. Purchasing vs. leasing. Purchasing a car may be the right choice for many consumers, but that doesn’t mean it’s the right choice for everyone. Leasing is making a comeback, and many car buyers are opting for this type of ownership. The Trillium Automobile Dealers Association has written extensively about purchasing versus leasing. I would encourage readers to visit our website (www.tada.ca) and check out previous Wheels columns on the subject.
7. Compare numbers. During the car-buying process, you will probably be speaking with several financial institutions and several new car dealerships. At some point, you may feel confused by all of the numbers and financial jargon associated with financing a vehicle. I recommend that you review the details with the appropriate dealership staff to ensure you understand the financial considerations and obligations. This way you will be assured of paying a fair price and getting the vehicle that fits your needs and desires.
This column represents the view of TADA. Email firstname.lastname@example.org or visit tada.ca. Frank Romeo, president of the Trillium Automobile Dealers Association, is a new car dealer in the GTA.