FAQ
Most frequent questions and answers
First time Getting an auto Loan in Canada
Securing your first car loan in Canada can be difficult, this is because first-time buyers don’t usually have a strong credit history to rely on. Even though it can be difficult, Drive Mango has got you covered. We have multiple specialized finance programs that have a proven track record of success getting first-time car buyers approved on great vehicles.
Normally first-time car buyers don’t have a strong credit history to work with which is why having a reliable source of income is important. As a first-time buyer, there are a few ways you can start to build your credit score so you have a better chance of securing your first auto loan. Getting a credit card at your local bank branch is one of the first steps to begin to build your credit history. Tethering simple recurring payments to your credit card (ie: cell phone bill, Netflix, etc) and paying off your credit card bill on time every month will help build your credit score.
Buying a car with bad credit
Buying a car with bad credit is achievable in many situations – more than the average person believes. Thanks to the numerous relationships Drive Mango has built with special lending institutions, it is now easier than ever before. More than 25% of Canadians have “poor” or lower than average credit, not to worry, there’s a great chance we can get you approved and take care of your auto needs.
If you work in the service industry and don’t have a lot of provable income, are new to Canada and don’t have a strong credit history, have recently gone through a bankruptcy/divorce, or have poor habits when it comes to borrowing, Drive Mango has you covered.
If you have a lower than average credit score, you most likely have a track record of partial or late payments, credit card or other creditor debt, and you may have even had some debt make its way to a collection agency.
Being able to provide proof of income will substantially increase your chances of getting approved.
Regardless of your financial situation, Drive Mango has many options available for you. In some cases it is even possible to consolidate some of your debt to further help get you out of a sticky financial situation.
How do I get a car loan if I have bad credit?
Typically when you apply for a car loan at a dealership, it is actually a major bank that “approves” your application. This means that there really isn’t much that a dealership can do for you that a bank cannot – this is where our competitive advantage comes in. At Drive Mango, we have relationships with more than just the big banks, not to mention our dealer partners who have built their own in-house financing programs to assist credit challenged applicants. This means we have a number of different avenues to ensure you get the best loan approval for your next car.
All you need to start the process is a monthly income of $1800 minimum (in some cases), a valid Canadian drivers license, and be at least 19 years old. If you’re ready to start your new car journey, the beginning of the process is just one click away.
Do I have to make a down payment?
Having a down payment is helpful especially if you have a lower credit score, but it is not necessary in the majority of cases even if you are credit challenged. A down payment will help lower your monthly payments when financing a car as the down payment will lower the amount you are trying to finance.
Regardless of what type of vehicle or the cost of it, a down payment will always help lower your monthly payment. In some cases, a down payment may help secure a car loan approval depending on your credit history but is generally not required.
What affects your credit score?
Sometimes assessing your credit score can seem like a daunting task – it can actually be quite simple. Besides the number that represents your credit score (typically ranging from 300 – 850), there are 5 main factors that are taken into account when calculating a credit score.
- Payment history
Your payment history is one of the most important variables when evaluating your credit score, just one missed payment can have a negative impact. Lending institutions and banks want to be certain that you will pay your debt back on time when considering you for a new loan/credit. Your payment history accounts for roughly ⅓ of your FICO/Beacon score, which is the score used by the majority of lenders when determining someone’s eligibility. - Debt owed
The amount of your credit allowance that has been used (credit utilization ratio), is the next most weighed variable when assessing credit scores. This ratio takes into account how much of your available credit limit is in use and can give some insight into how much a person relies on non-cash funds. Generally utilizing more than 30% of your available credit balance is looked at negatively by lenders and banks. Your credit utilization typically accounts for roughly ⅓ of your FICO/Beacon score. - Length of credit history
The amount of time you’ve had an open credit account makes up another significant portion of your FICO/Beacon score. This takes into account all of your credit accounts (credit cards, lines of credit, etc) and the average age of your credit accounts. Typically the longer you’ve had credit history, the higher your score will rank. - Credit mix
Usually people with high credit scores have multiple credit accounts. These include accounts such as car loans, credit cards, student loans, lines of credit, and mortgages to name a few. The types of credit accounts and the number of each you have are metrics that lenders and banks take into account when scoring your credit. This is a good indication of how well a person manages their credit products, these metrics account for a smaller portion when it comes to ranking a credit score. - Inquiries and new credit
The amount of credit accounts that have been recently opened can be viewed as a slight risk if too many accounts have been opened within a short period of time. To add to this, the number of hard inquiries (credit checks) can signal an increased risk when assessing a credit score as too many inquiries can harm your credit score.
Lending institutions and banks use these factors to determine how likely you are to pay back your loan and ultimately whether or not they are willing to approve you for your loan. As your finances change over time, so does your credit score. Knowing what affects your credit score will help give you a better chance at building a strong credit history.
What might harm your credit score?
There are a number of things that can hurt or build your credit score, the following key things are usually what negatively impacts someone’s credit.
- Missed payments
Payment history is an important variable that has a massive impact on your FICO/Beacon score. Missing even one payment will most likely have a negative impact on your credit score. - Using too much of your credit
Lending institutions and banks consider a high utilization of credit to be a red flag, this signifies that you depend on your available credit too much. To turn the odds in your favor, creditors like to see a maximum credit utilization of roughly 30% of your available balance. The lower the utilization the better. You might be wondering, how do I build my credit score without using my credit card? A tip is to only use roughly 30% of your available balance and to ensure you’re at least making the minimum monthly payments on time. - Too many applications within a short time frame
Every time you apply for a loan or credit, a hard inquiry is recorded on your credit history. These inquiries stay on your credit history for 2 years, too many inquiries will negatively impact your credit score for this period of time. Too many hard inquiries within a small time frame can signal to lenders and banks that you are in a rough financial situation which increases the chance of your application being denied. - Account defaults
Defaulting on an account will severely harm your credit score, these include filing for bankruptcy, repossession, foreclosures, and settled accounts. This kind of negative account information usually stays on your credit report for 7 years, for these 7 years your credit score will be negatively impacted. In some cases, consulting a debt consolidation service can help map out a plan to get you out of murky financial waters before having to default on an account.
Defaulting on an account will severely harm your credit score, these include filing for bankruptcy, repossession, foreclosures, and settled accounts. This kind of negative account information usually stays on your credit report for 7 years, for these 7 years your credit score will be negatively impacted. In some cases, consulting a debt consolidation service can help map out a plan to get you out of murky financial waters before having to default on an account.
Improving your credit score
Building your credit score is easier once you’ve identified what is harming your credit to begin with. Implementing good financial habits sooner than later will help you develop a strong credit score in the long run. The first step to improving your credit score starts with assessing your own credit history. You can usually get a free copy of your credit history from your banking institution, in some cases it’s available on your online banking account. Focus on what is driving your credit score down and work towards fixing those issues. Here’s some tips to help increase your credit score.
- Paying bills on time
- Paying off debt
- Outstanding payments
- New credit applications
Lowering the amount of times you ask for new credit or a new loan will minimize the number of hard inquiries on your credit file. These inquiries stay on your credit file for 2 years, a reasonable amount of inquiries for a clear purpose usually poses no harm. Try and avoid too many hard inquiries within a short period of time as too many may harm your credit score.
How does the Auto Calculator Work
Drive Mango’s Car Loan Calculator works by taking in the:
- Price of the car
- Estimate Downpayment
- Annual Interest
- Sales Tax
- Length of the loan
- Trade-in Value
All together it calculates the approximate monthly, bi-weekly, and daily payments with interest to show you exactly how much it could cost you.
This tool makes it much easier for people to budget and plan for pricing that works for them and gets them one step closer to finding that sweet deal.
How does the Buying Process Work?
- Browse our inventory of vehicles
- Sign up hassle free with no credit checks with our quick survey
- Get approved from the comfort of your own home
- Schedule a Test Drive
- We hand you the keys to your new vehicle
We keep in touch with our customers to make sure their needs are always met.
How Leasing vs Financing affects your insurance
The good news is, there is no difference in insurance costs whether you are leasing or financing your vehicle. Your insurance cost is determined by a number of different factors including your driving history, where you live and the type of vehicle you are driving.
If you are involved in an accident and your car is written off, the outcome remains the same regardless of leasing or financing. Your insurance coverage will pay off the debt on the car first, if your car is worth more than what is owed, you will receive the remaining balance. If you owe more than what your car is worth, “gap-insurance” is available at the time of purchase to cover these costs.
Tax Benefits for Leasing VS Financing a car for business
Deciding whether to lease or buy/finance your vehicle for your business depends on what your needs are.
Leasing may be a better option for you and your business If you:
- Prefer to drive a new car every 2-5 years
- Drive an average predictable amount of kilometers every year
- Have good credit history
- Maintain your vehicle well
With a car leased for business use, you can deduct up to $800/month plus HST which means you’re capped at $9,600 in tax-deductible expenses annually.
Financing may be a better option for you and your business If you:
- Have the vehicle’s ownership in your name
- Eventually pay off your car and be payment free
- Drive as many kilometers as you please
- Customize your vehicle
If you decide to purchase the vehicle in full, the whole amount paid up front can’t be claimed, the cost would be spread over the “useful” life of the vehicle. The tax deductible limit for a purchased/financed vehicle is $30,000. Keep in mind that you cannot deduct the full amount right away, it must be depreciated at 30% on an annual declining balance until the $30,000 has been claimed.
You are also entitled to claim the interest paid on your auto-loan, this amount is capped at $300/month.
Conclusion:
It depends on your business needs, some businesses will find ownership better than leasing. Likewise, leasing gives businesses the freedom to change out the car after each lease and maintain consistent payments.
For more in depth info on Leasing and Financing under a business, check out our blog.
What parts of an auto-finance deal are negotiable?
Price:
In some cases for new vehicles, the offered price or Manufacturer’s Suggested Retail Price (MSRP) has some wiggle room. It is important to look online and ensure what you are being offered is standard across the average car dealer. If you are going to finance the purchase, there is a chance the dealer will offer to help you out a little more. Due to the level of competition amongst dealers, online listed prices of new vehicles have already been discounted to the bare minimum to gain more traction. This is an important aspect to note to keep in mind when viewing the price.
Trade-In Value:
The value of your car is negotiable in many cases. If you have maintained your vehicle well, have not been involved in accidents, kept the interior clean & smelling fresh, there is a good chance you can ask for more money when trading it in. Keep in mind that if you still owe a balance on your current vehicle and try to sell it privately for more money, the loan must be paid in full before transferring ownership to your buyer. When trading in your vehicle, the loan balance can be carried over to your next vehicle purchase and in some cases, a positive amount is carried over to help with the next vehicle.
Interest Rates:
When you are approved for your auto-loan, the dealer will inform you of the interest rates you qualified for. In some cases a dealer will offer you a higher interest rate to begin with. It is always a good idea to ask for a lower rate as it will save you money in the long run. Sometimes dealers have set monthly programs for new vehicles to be financed, asking what finance programs are available for the vehicle in question is a good way to start this conversation.
Term Length:
This decision should be made while keeping your monthly budget in mind. The longer you finance your purchase for, the more interest you pay. The shorter your term length is, the higher your payment is. Finding a good balance between these factors is the key here. The majority of auto-loans in Canada are open ended which means you have the option to pay off the loan in full at any time which allows you to avoid the interest payments.
Payment Schedule:
You can decide to pay your auto-loan monthly, semi-monthly, or bi-weekly. Depending on how your income is paid to you, lining up your auto payment with your paycheque ensures you will always be able to make your payment on schedule. You can also decide the dates in which your payments come out. If you are only paid once a month on the 15th, it would be a good idea to organize your payments to be monthly and withdrawn on the 16th or 17th of each month.
Additional Products and Services:
Warranty, maintenance packages, and protection plans are usually offered towards the end of the deal. In some cases, they can be extremely beneficial to add on. The price of these packages are negotiable within reason as well. For example, “Gap-Insurance” can help save you from a situation in which your vehicle is written off in an accident and you are left with an outstanding balance on your auto-loan. This means you’d be paying for your vehicle even though you don’t have it anymore. If you are interested in some extra services or protection, it is a good idea to ask for a better deal on them.
How do I include a Cosigner to help purchase a vehicle?
When applying for Car Loan Financing, lenders will look to confirm your identity, ability to pay and understanding of your needs. They may request:
- Government Issued Identification: To confirm your name, current address (Can be in the form of a driver’s license, passport, etc.)
- Proof of Residency: Showing proof of where you live (Can be Utility Bill).
- Proof of Income: Showing proof of income (Can be a Pay Stub).
- Proof of Car Insurance: Showing that you are eligible to drive a car (Car Insurance)
- Consent to conduct a Credit Rating Check (Personal information, Social Insurance Number)
These documents may be suggested at a number of the buying or inquiry stages of applying for car loan financing. Sales agents and lending officers will walk you through the steps and ensure the information submitted is correct.
Can I Apply for a Second Car Loan:
Yes. You can apply for a second car loan as long as the lender approves you.
Factors for approval include:
- If your credit score is high enough
- If your income and debt can handle the added cost
- You may still be able to apply with bad credit but will face higher interest rates
- A second loan will increase your debt-to-income ratio making it hard to borrow down the road
Applying for a second car loan may be an option for some people depending on their vehicle needs, just keep in mind the factors above.
