When Can I Renegotiate My Car Loan?
One of the biggest thing you will probably be focused on when you get a car loan in Toronto will be the interest rate you will be paying.
This number is the percentage on top of the principal amount that acts as the credit provider’s profit, and can make your monthly repayments significantly higher if you are not careful.
Once you have a loan finalised and locked in, you may be wondering when you might be able to renegotiate a better interest rate on your loan.
There are several things to keep in mind when looking to change your interest rate, so we put together this guide to help you make the most of your monthly repayments.
Try to get the best rate possible to begin with
While this may be easier said than done, trying to ensure you start out with the lowest possible interest rate is the ideal situation.
The interest rate you will be charged on your car loan in Toronto will depend on a number of factors. These will include:
Your credit score
The metric with the biggest impact on your interest rate will undoubtedly be your credit score. Typically, people with better credit scores will get the lowest interest rates, while those with poor credit scores will be given the highest interest rates.
This is because credit providers see anyone with a low credit score as a potential risk for defaulting on the loan, so they make the interest rates higher to try and make the risk worth their while. The downside is that people with bad credit or no credit can be taken advantage of as they can feel like they have no options.
Autoloans.ca is a car loan provider located in Toronto, Ontario that specialises in securing the lowest possible interest rates for people with subprime or no established credit history. We negotiate exclusively with Canada’s leading banks and credit unions and don’t rest until we get your application approved. As your loan will be with a reputable credit provider, your credit score will steadily increase along with your regular, on time payments. A bad credit car loan can be an ideal way to repair credit or build a credit history from scratch.
The Type Of Car You Get
Your interest rate can also be impacted by the type of car you are getting on your loan. Some credit providers may see purchasing a sports car as a riskier move and so charge more interest, whereas a more conventional sedan or station wagon may attract a lower interest rate.
The Prime Interest Rate
Essentially all forms of loans will be influenced by the prime interest rate. This is the interest rate set by the Bank of Canada and is used to determine the perceived state of the economy and whether the government would like to limit or stimulate consumer spending. If the rate rises, your interest rate is likely to also rise, whereas if it lowers, you can expect to pay a lower rate when you renegotiate.
The Credit Provider
The interest rate you are able to secure initially will also depend on the type of credit provider you choose to go with. For example, banks are generally considered the safest options with the best reputations, however, they have relatively low appetites for risk and so will like offer an extremely high interest rate for anyone with subprime credit. On the other hand, loan brokers that specialise in bad credit car loans in Toronto will have a network of reputable credit providers they can negotiate with to secure the lowest possible rate, as they have built relationships with these lenders and can put their reputations to work for their clients. Keep your personal financial situation and the type of credit provider you approach front of mind when you look to refinance your loan.
Every year you can renegotiate
Every car loan term will be different depending on which financial institution you take it out with and what the particulars of your loan were.
Generally speaking, you can renegotiate your rates every year with your current provider, or you can shop around to other credit providers who are willing to give you a lower rate.
Autoloans.ca has a policy of renegotiating our car loans every year to ensure our customers are getting the best rate possible. Assuming you have made regular, on time repayments on your loan and have not engaged in any other risky credit behaviour, your credit score will likely have increased in the past year.
Having a better credit score puts you in a good position to renegotiate a better interest rate, as you will now be seen as a lower risk investment for credit providers than you were a year ago. This allows you to command a lower rate to reward you for your hard work at rebuilding your credit score, which will in turn lower your monthly repayments and keep more money in your pocket.
If you keep renegotiating and making your payments on time, you could easily get to a very good rate over the length of your loan and end up with a fantastic credit score as well.
Always be on the lookout for better rates
Just because you have a loan with one credit provider does not mean you have to be locked in with them until you have paid the loan off.
Always be on the lookout for better rates offered by their competitors. Credit is a highly competitive industry and companies need to be aggressive in their offers in order to win customers and undercut their competition.
This is only good news for consumers, as the companies are usually more than willing to work with you on your interest rate in order to win your business. Should you find a better interest rate with a competitor, you could possibly negotiate an even lower rate with your current provider by telling them the rate you have been offered and whether they are willing to beat it.
Should you choose to switch to a new provider with a better interest rate, they will pay off the remainder of your loan to the previous provider and then the balance will transfer over to them. Many credit providers run specific balance transfer promotions, so make sure you keep an eye out for these and take full advantage of them if they work for you.
However, you should be cautious around any extension in your loan term when receiving a better interest rate. Be sure to crunch your numbers to find out if you will actually come out on top if you make the switch, as these can sometimes be misleading.
For example, if your current loan is a 7% interest rate on a 36 month term with a $20,000 principal, you would end up paying $2,521.61 in interest after taxes. You then find a lender who will give you a 5% interest rate, but will extend your loan to 60 months. If you went with the new lender, you would actually end up paying $467.73 more interest over the length of your loan.
Know your early exit clauses and fees
Leading on from the previous point, you should be well aware of any early exit fees or payments from your current loan should you decide to move to a new lender.
Some car loans in Toronto will come with clauses built in that stipulate what will happen in the event you pay off the loan sooner than the agreed upon term. Generally, this will be a fee you have to pay that is meant to offset some of the lost interest profit the lender would have made off you if you had stuck to the original term. This is the same for mortgages as well, as banks stand to lose hundreds of thousands of dollars in interest payments if everyone started paying of their mortgages in 10 years as opposed to 20.
Make sure you read the fine print on your current loan to see what your early exit fees might be should you decide to move. Many credit competitors will offer to pay whatever your exit fees are in an effort to entice you over to their services. Again, always make sure you run your numbers to ensure that taking advantage of those offers will actually work out in your favour.
Try to avoid carrying an upside down loan
One of the worst case scenarios for carrying a car loan in Toronto is ending up with an upside down loan.
An upside down loan is when the amount you owe to your creditor is actually worth more than what the market value of your car is currently worth. This essentially means that if you were to sell your car today, you would end up with less than what you owe your creditor and still owe them money even when you no longer have the car.
The goal of any loan process is to reduce the loan balance to zero before the value of the loaned object reaches zero. In the case of cars, this is a particular risk as cars are some of the most notorious capital investments for high depreciation values.
Some of the ways you can mitigate this risk is by choosing a car that holds on to its value for as long as possible. Generally speaking, pickup trucks tend to hold their value the longest out of all the cars, due to their highly functional nature. If more standard vehicle types are your preference, Toyota’s have taken out top spots in most valuable resale lists for years, so they make a sound investment.
Another way to avoid an upside down loan is by getting your loan paid off as quickly as possible. Whether you do this by negotiating a lower interest rate, or putting any bonuses towards your loan to lower the owed amount is up to you. In essence, doing whatever you can to ensure you pay off the loan quickly will help you avoid an upside down loan.
Don’t be afraid to know your worth
Negotiation is all about give and take, and being confident in knowing what you bring to the table.
Make sure you know exactly what your current credit score is, what people with similar scores are getting from their providers, and what competitors would likely offer to someone with that credit score.
Going in to negotiations with this knowledge will give you an upper hand and allow you to stand your ground should your current provider try to offer you a bad deal. Understanding that they don’t make any money off you if you leave is key, so don’t be afraid to ask for a rate you know you are worth and that you could receive elsewhere.
Are you looking to renegotiate your current car loan? Autoloans.ca is the leading supplier of car loans in Toronto, specialising in people with bad or no credit history. We will always try to secure you the lowest possible rate for your particular credit score, and won’t take “No” for an answer when we do. Contact us today and find out how much you could save.