Getting a car loan is simple enough. You go to the bank and provide some information, sign some papers, and then go home and wait a couple of weeks with your fingers crossed. We all understand the process, but doing it right is much more difficult.
That’s why there are professionals who do it for a fee. This fee is often outrageous, and most of us don’t like to go through that. Knowing how to do this the proper way can save you a lot of time and money.
If you’ve done this many times and been rejected, you might have overlooked certain things. Even if you’ve succeeded in the past, there are still some factors involved that may impact your finances. You need to understand interest rates, types of loans, and the tax regulations behind it all.
Interests and Payments
Most lenders use simple interest for their loans, which is the most common type. It’s popular because it charges from the remaining amount only. If you encounter some other schemes, consider further research before making a decision.
A lot of us make the mistake of thinking we have to pay the same amount every time, and this misconception affects our choices in a negative way. Remember that your payments are higher at the beginning of the payment plan. They start to descend toward the end. That’s how simple interest works.
Another thing is that your credit and the type and condition of the subject vehicle affect the interest amount.
Who to Borrow From?
Besides digging into your trust funds and asking your grandparents, there are two standard options:
- Bank: an excellent choice for responsible money spenders. If you have a high credit score, go down this route. They have plenty of different interest and payment options. Find one that’s right for your budget.
- Dealership: this is convenient since a lot of places offer financing options on the spot. The interest will depend on the car you’re buying. Some dealers allow loans for buyers with bad or no credit scores. In this case, this is a better option than the bank.
- Online Service Provider: these guys let you find your car without any hard paperwork. They cater to customers facing financial issues or having less than optimal credit ratings. If you fall into this category, this, unfortunately, might be your only option.
Is Auto Loan Interest Deductible?
If your car is part of your money earning process, the interest on its loan may be deductible. The CRA will allow relief on vehicle expenses if they are for business purposes. Other restrictions may apply depending on your employment situation.
Self-employed drivers can also receive deductions on car loans. It relies more on the type of vehicle and the activities conducted with it. It’s best to consult a professional at Faris CPA to find your specific information.
We go back to the primary steps before going to see a lender. Make sure you have all the necessary paperwork. They can include proof of income and residency. Without all of the requirements, you will waste your whole trip.
Also, figure out a solid payment plan before signing anything. Work out an achievable schedule and follow it. The last thing you want to do after having your loan approved is not be able to pay it.