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Summer is just around the corner, which means it’s a busy season for car-buying.

As eager as you may be to buy a new pair of wheels, you might want to consider taking a moment to understand some of the risks and pitfalls associated with financing a vehicle. Financing your new ride may come with issues such as negative equity, high financing rates, and different terms of agreements to understand. That’s why it’s important to know your rights and educate yourself, with the help of OMVIC’s resources, before you decide to make one of your biggest purchases.

As a consumer, it’s prudent that you make the right decision when financing a motor vehicle, and this means doing some research. In many cases, consumers opt to have the dealer arrange financing for their purchase, but there is also the option to arrange for financing at your own bank or credit union.

When trying to decide which finance option is suited to your needs, you should remember to look at the bigger picture which includes the monthly payments, the selling price of the car, and the cost of borrowing. That way, you’ll have a better idea of whether the deal is in your best interest. It’s not necessarily about getting a “good deal” or a “bad deal”, rather it’s best to ensure that you are satisfied with all the terms of the purchase and confident you’re making an informed financial decision.

If you’re thinking about trading in your old vehicle for a new one, you’ll need to consider what you owe on the vehicle you’re trading in

Negative equity is when a consumer owes more on a vehicle than it is currently worth. The depreciation rate of many vehicles is extremely high, especially if they have a high mileage. So, financing a car for 84-96 months typically requires consumers to borrow additional funds for the purchase of a new vehicle in order to pay off their negative equity. Therefore, you should consider how often you typically keep a vehicle. Although the 84–96-month financing options can appear attractive because they will reduce your monthly payment, if you trade a vehicle in after 6 months, you still have 24-36 months of payments remaining. It may be difficult or even impossible to complete a trade for a new vehicle when there’s that amount of negative equity.

Some consumers tend to obtain vehicles using long-term loans in order to make low monthly payments. These consumers set their sights on having a low monthly payment rather than focusing on the total amount to be financed. In many cases, car buyers are unaware that long-term vehicle financing can lead to spiraling debt with each subsequent purchase. Increasingly, consumers find themselves “upside-down” with negative equity when it’s time to trade in and purchase another car.

Always carefully review your contract

When presented with your contract, take the time to review all the terms of your agreement, including vehicle pricing and financing details. The agreement is required to include items such as your monthly payment, the frequency of your payment, the terms of your loan, the interest and annual percentage rates as well as the cost of borrowing (the amount it costs you to borrow from the financial institution) and total loan amount. If the dealer can’t provide the finance terms outlined in your contract, you can agree to the new terms, renegotiate, or walk away.

Ontario’s ‘no cooling off period’

In Ontario there is no cooling-off period for motor vehicle agreements, so be sure of your decision before you sign. You will not be eligible for OMVIC’s compensation fund if you signed an agreement to purchase or lease a vehicle and then change your mind. Once you’ve signed a contract, it is legally binding.

When in doubt, OMVIC is there to help

Buying a new or used vehicle? Visit omvic.ca to access free car-buying resources to get you started, and sign up for the quarterly newsletter, Consumer Line.

You can also contact OMVIC’s consumer support team at consumers@omvic.on.ca or 1-800-943-6002 for expert advice and answers to all your car-buying questions, or if you have a complaint about a dealer or salesperson in Ontario.

On Monday, May 22nd at 7:00 p.m. OMVIC will be hosting a webinar on how to buy a car in Ontario. A representative from OMVIC will provide resources, tips, and advice to car buyers for buying new & used cars in Ontario. Click here to register.

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