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Do Lower Interest Rates Mean I Should Buy A Car Now?

Posted by Auto Loan Solutions

Last week, the Bank of Canada cut its key interest rate from 1% to 0.75%, in the wake of the weakening Canadian dollar, and the lowest gas prices we’ve seen in years. As Yahoo News reports, this “surprise” interest rate cut may provide consumers with lower interest rates on everything from car loans to mortgage rates. However, experts warn that anyone with debt should not try to take advantage of these rates without being able to pay down their debt over the long term, regardless of how badly you want that new car or truck.

“We know that the level of debt is high and it is concerning that Canadians might see this as an opportunity to use the lower interest rates to purchase things on their wish list,” explained Patricia White, Executive Director of Credit Counselling Canada. White also added that “credit card interest rates are not likely to be reduced.”

Instead, consumers should be taking advantage of these low interest rates by paying off their debt, and reestablishing their credit. 

But with interest rates on both short-term and long-term car loans continuing to decrease, many are pondering if they should take advantage of these rates and buy a car now. In fact, even car loans for people with poor credit, offered by auto specialists like Auto Loan Solutions, are currently being offered at surprisingly lower costs.

From an interest rate perspective, some of the 0% financing offers you can find at many Ontario car dealers make it a no-brainer. Now could be the best time to buy a car…EVER. But we must all keep in mind, regardless of how low these rates go, that adding more debt to your already existing debt is NEVER a viable answer. Doesn’t matter how attractive new car ownership is starting to look with those ultra-low monthly car payments, especially coupled with seasonal-best car prices popping up throughout Toronto and the GTA. If you’re in debt, or if you have poor credit, do everything in your power to improve your rating first, if possible.

If you do, however, need a car ASAP despite your poor credit, then you’ve come to the right place. After all, Auto Loan Solutions has been helping out people in this situation for decades now.

And so, with rates quite low, the model selection plentiful, and the economic outlook finally making the leap from ‘uptight’ to downright optimistic, the question you may be asking yourself is…

“Should I Take Advantage of these Low Interest Rates and Buy A Car Now?”

Of course, there’s no single answer that’s right for everyone. It depends on both your personal and professional situations, just as much as it does on the Bank of Canada’s Key Interest Rate. But with a few simple calculations – and a little common sense – you should be able to decipher the best possible answer that’s right for you.

Firstly, it’s important to note that when Bank of Canada governor Stephen Poloz took over in June 2013, he inherited an overnight rate which was set nearly three years earlier by his predecessor, Mark Carney. That rate remained stagnant for one of the longest stretches in Bank of Canada history before its surprise decrease on January 21st, which many experts have agreed caught them off-guard.

Stephen Poloz (Photo: CTV News)

In fact, there were even some who believed the interest rate would go higher this year, including one Bill Robson, president of the C.D. Howe Institute Think Tank. Robson cited an improving U.S. economy and a pickup in Canadian exports as the reasoning for his rationale.

Taking all this into consideration, if you do need to purchase a car, regardless of your credit, some experts believe that now is indeed the ideal time. On the heels of the Bank of Canada’s decision, The Ottawa Citizen asked Mike Moffatt, an assistant professor of business, economics and public policy at the Ivey Business School at Western University, and Leslie Preston, a Toronto-based economist with TD Bank, about what these new lending rates mean.

Both Moffatt and Preston agreed that now is a pretty good time to either take out a mortgage, or buy a car. The lower rate “certainly helps you,” explained Moffatt. “For a mortgage, you do want to be careful that five years from now when that mortgage rolls over, that you’ll still be able to afford that mortgage, when rates will likely be significantly higher. Don’t bite off more than you can chew. There’s going to be a lot of competition out there as lenders try to get new customers. It’s a good time to be shopping around.”

Preston reiterated his sentiments. “Canadians have already pared back their borrowing dramatically over the past couple of years,” he said. “Household debts were growing at a nearly double-digit pace not that long ago and they’ve come down to close to four per cent year-on-year. I think Canadians heeded the warnings about high debt levels. Will they respond to the slight reduction in overnight rate? The jury is out.”

Furthermore, CBC reports that TD predicts yet another decline in the Bank of Canada’s interest rates come March, claiming that it will be cut yet another .25 percent.

So from a broader economic standpoint, it seems things are getting better (at least for Ontarians), with fears of a complete economic meltdown no longer swirling in the background. But that still doesn’t answer the REAL question…

How does this affect YOU?

If you’re finding it difficult to meet your current monthly payments now, then it may not be the best time to take on another one with a new car loan. As your situation improves along with the rising economic news, you can continue to get yourself on a solid financial footing and make a decision that’s right for you.

But if you’re in pretty good financial shape already, this is probably one of the best times we’ve seen in a LONG time for you to go ahead and make a move towards a new car loan, due to the simple reason that the rates you’ll get quoted on are the most reasonable in years.

How About Another Alternative?

With the general upturn in the economy, it is more important now than ever for people to breathe a sigh of relief… and take the initiative to repair their bad credit situation, if circumstances haven’t been the best up to now.

After all, your credit score can affect you in many different ways, from the type of bank account you can get, to the interest rate that you pay when you take out a loan. Individuals with good credit scores will likely pay interest rates as low as 4%, but those with poor credit scores can pay much more.

The good news is, although those high rates may be discouraging, they can be reduced over time with good planning and timely payments. And by setting up a manageable schedule, keeping up with your payments, and gaining the trust of your lender, you’ll likely be eligible for a lower interest rate within 12 months or less.

If you’re thinking of taking the new-car plunge – or even a pre-owned car that’s just ‘new’ to you —  there are plenty of reasons to make a move now, if you can. Not only because of lower interest rates, but also because of a great mix of selection, inventory and financing options available in the Toronto area to help you get started as quickly and painlessly as possible.

Want to experience the ease, flexibility and top-rated customer service of Ontario’s largest auto loan company? Click here to contact Auto Loan Solutions and find out the lowest interest rates available on your next vehicle. Also, be sure to check out our Facebook page for user testimonials, reviews, and more.

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