Spurred by incredibly low interest rates and a highly flexible repayment periods car loans have been growing at unbelievable rates in Canada. In the recent years it is reported that the Canadian Auto Loan Market has recorded the fastest growth rates in the country than any credit market. In fact many surveys have shown that consumers borrow up to 135% of the value of the car they are out to buy.
Such a move totals to very Bad Credit Auto Loans in Canada today. It is a “negative equity” that could easily permeate the Canadian Auto Loan Market. So how do such moves result into a bad credit? Here is a typical example.
Let’s just say you’re out work and need to repay your mortgage (a debt at hand), you figure out that buying a car for a taxi can give you enough to pay your mortgage. So you take your savings and pay for the very first down payment of your car (another debt created) with the remaining of the price payable in seven years monthly installments. If you were buying a 2014 Nissan Altima you’d end up paying $55,000 instead of $18,000 in many credit firms today. Almost three times its original amount.
Without knowing it you will be rolling out debts in form or mortgages, student loans, credit card bills, and previous car loans onto a new car debt by taking more cash to offset the previous debts and take the advantage of flexible payment periods of the new car loan – not cool! In Canada the many loaning institutions love Auto Loans because their interests are compounded to 20% since 2007.
When you roll out older car loans into new prime loans you could easily get rejected for being an overextended case – a pal of mine did as his final loan ended up being 40% more than his vehicle was actually worth. In short the cycle of refinancing supports a culture of debt that’s typically led to Bad Credit Auto Loans in Canada. Well a number of factors might have played a big role in building up this culture such as these.
- Financial institutions are able to justify their risks based on the high interest returns.
- Historically there are very low levels of losses in the Canadian Auto Loans Markets.
- The government and other regulators haven’t imposed restrictions on auto/ car loans.
- There is lack of proper monetary management skills and knowledge in many people.
- The longer amortization periods looks exceedingly lucrative and pain free in payment.
There are however very many demerits that people aren’t seeing with this type of auto credit offer. Here are but a few of them.
- You will be paying for a car that you no longer own.
- You will part with much more money that the original price.
- The monthly payments are often done without focusing on the car’s cost.
- Your payment period is over-stretched meaning you’d carry the loan for long.
The Canadian housing industry demands that government backed loans must have at least 5% of the consumer’s money in the deal. Such regulators are some of the very best ways to kick out the Bad Credit Auto Loans in Canada today.
Negative equity loans are easy to obtain. You walk into car dealer’s yard with your 4 year old car and $10,000 owing in car loan and the dealer trades it in at $5,000 leaving you with $5,000 debt on a car you no longer own. If your credit is good he could give you a $35,000 car with a debt of $35,000 + $5,000 on the old car attached to it ($40,000) loan.