First things first, What is a car loan? 

Car loan payments are made up of three (3) different components:

1. Interest rate: the percentage that the lender or dealership is charging to borrow money, the interest rate can vary depending on the vehicle, loan terms, and the borrower’s financial circumstances. 
2. Term: the length of time that the payments will be made for typically terms will run anywhere between 36 to 72 months (shorter or longer terms are sometimes possible). 
3. Principal: the total cost of vehicle including any add-on’s and fees that the lender or dealership implemented.

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What are car loan requirements to get approved? 

Contact Details: provide personal contact information, such as, full name, date of birth, phone number, email address, current address and SIN Number to your finance specialist. 

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Why is a SIN number required to complete a loan application? Providing your SIN number ensures that others can’t steal your identity and apply for a loan with your information. This ensures that your application is authenticated. The information provided on the application is always secured and confidential.  

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Driver’s License: You need a valid Alberta drivers license. This is to prove you are eligible to drive the vehicle you are purchasing.

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Current Address: to complete loan application a current address is required. 

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Employment and Income: You need a current job with consistent income every month. However, other forms of income, such as self-employment, childcare payments, government assistance, and disability can be accepted with the proper proof. 

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Paystubs: If you have an employer who pays you consistently each month, your paystubs will be used to prove that income. However, some employers pay via direct deposit, or e-transfer and do not provide pay stubs. Therefore, your bank statements will need to be used for showing that income is deposited.

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Bank Account: have a void cheque, pre-authorized payment form, and/or bank-statements readily available to provide if needed. If you are proving self-employment income, or do not receive paystubs from your employer your bank statements will be used for income verification. If your payments are to be taken out each month automatically by the lender, then your account information will be used for this purpose.

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Down Payment: this step is not always necessary but encouraged to help boost your application and reserve your vehicle. However, the more that you can be put down upfront can help decrease the amount being financed monthly. 

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How are car loans calculated? 

Simple interest car loans 

• Flexible payment option 
• Interest rate is based on the amount owed on the payment day, therefore, more or less can be paid based on your financial situation. This provides you more flexibility on paying off your payment plan (either earlier or later). 

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Precomputed car loans 

• Concrete payment option 
• Interest rate is already integrated in the loan. Therefore, paying ahead of schedule does not affect the interest rate. 

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What impacts car loan interest rates? 

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Credit score: the higher the credit score, the higher chance for application approval. This decreases the risk factor to the lender and decreases interest rates. However, low to bad credit applications have other factors that can boost their application and decrease interest rate. 

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Down payment: the more paid upfront helps the application and affects the interest rate. 

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Loan term: the longer it takes to pay off the loan, the higher the interest rates.

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