Magellan Auto Credit

09/01/2023

11/02/2019

I’ve read many articles on pros and cons of using your HELOC when it comes to buying a car and the main conclusion I’ve come to, the people that wrote the articles are either

a) Idiots

b) Work for a company that offers HELOC loans.

If you are planning on buying a car using your HELOC, STOP, it is quite possible the worst financial mistake a person can make.

Banks love it when you use your Home Equity Line of Credit for purchases instead of what it is meant for.

HELOCs are advanced based on the equity in the house, you can use that equity for improvements on your property which in turn will hopefully increase the sale value when you decide to sell and then pay off the mortgage and HELOC with the proceeds of the sale. If your mortgage comes up for renewal, the banks will offer you the opportunity to roll the balance of your HELOC into your mortgage, if all you’ve used it for is home renovations, this isn’t that bad.

BUT….

If you have purchased a car, went on a trip, bought a new RV (basically anything other then what they are meant for) you are now paying these off over a longer term and costing your thousands in extra interest. Lets look at an example of using it to purchase a vehicle vs dealer financing

HOME EQUITY LINE OF CREDIT

If you have an existing credit line with sufficient available credit to pay for the vehicle you’ve chosen, keep in mind how your credit line assesses the minimum payment each month. It will be tied to the prime lending rate, which will go up or down depending on Bank of Canada.

With a line of credit, your minimum monthly required payment will fluctuate, which can make it harder to budget, especially if you’re banking on only making minimum payments. If you save your credit line for emergencies, the cash you need for an emergency may no longer be available if you use most of your credit limit to buy a vehicle.

If your credit score drops for some reason and your lender becomes concerned that you may not be able to repay your credit line, they can ask for full payment of the line of credit or lower your credit limit drastically at any time.

FINALLY, when it comes time to renew your mortgage, if you also pay off your line of credit at that time to get “1 easy payment” you are now paying for that car for what could be 10 or 15 years costing you 10s of thousands in interest.

DEALER FINANCING

Applying for a car loan through a car dealer can mean that your loan application will be brokered to various lenders to get you the best rate.

There is no need to set up an appointment with your bank, dealerships are tied into the banks and depending on your credit, can have an answer in minutes.

No fluctuations in rate or payment, terms and rates are fixed so the payment on the 1st day is the same in year 4.

Sub-vented rates on new - Manufacturers have deals placed with the main banks in Canada to offer lower rates on new vehicles, some can even offer 0%

NO PENALTY to pay the loan out early or to make extra payments.

The loan stands on its own and isn’t tied to any other asset.

10/28/2019

Should I buy an extended warranty?

Here’s the simple truth about extended warranties aka mechanical breakdown insurance policies. It is important to know that these are in fact contracts. By definition that means there is going to be some “legalese” (stuff written by lawyers” in your warranty contract.

Most contracts pay for both parts and labor. Some plans may have a maximum claim limit per repair. $5,000 for example.

There are over 85,000 components in today’s vehicles. About 17,000 of them are “Moving” components. Roughly 50 microprocessors and about 18 kilometers of wiring. If a component on your vehicle breaks or fails you could be in for a costly surprise at the repair shop.

There was a time when you purchased a $300 replacement water pump, bought a six pack of beer, called your buddy and with some basic tools and after a few hours in the back yard you were on the road again. Those days are in the rear view mirror. Today’s vehicles are much more complex and you might need to lift the entire engine out of the engine bay just to gain access to that water pump.

10/26/2019

Why Trading Your Car Makes Sense...

Traditionally, the trade-in process has been one of the more difficult steps for both customers and car dealerships to take while navigating the road to completing a vehicle sale. In 2019 however, it no longer has to be. Retail car dealerships are more approachable and transparent than ever due to the rise of powerful technology that allows for no-nonsense trade valuations and customers to verify information.

When a trade value is needed, more information about your trade vehicle is always better. The Vehicle Identification Number (VIN) gets everything started. You can usually locate the VIN at the bottom corner of your windshield or in your driver’s door jamb. Next in line is the vehicle mileage (although in Canada, we should really call it kilometerage…) which is a broad-stroke indication of how much use the vehicle has endured. That said, even if your vehicle is higher mileage, providing the dealership with a great description of the vehicle’s condition as relates to tire tread, body damage, glass and interior wear and tear will help build value. Last but not least, provide the dealer with all the background you can about maintenance history as well as any accidents that may have been repaired.

Once the dealership has all that information (and can have a look at your car), they feed it into a program which compares your vehicle with others available for sale that are similar. This shows the dealer an overview of what the pre-owned market is like for your vehicle. From there they can determine a retail price at which your vehicle should sell for and work backwards from that. The dealer subtract reconditioning costs and a bit of margin to come up with a solid trade value that they can stand by and also back up with facts.

You might be thinking: “Well, I’m sure I can get the retail number if I sell it myself…”

Yes, this could be the case. The dealership has shown you that similar cars are retailing in a certain range so it is something you can consider. It is also important to ponder some of the challenges of selling your car privately:

Often, customers looking to purchase pre-owned cars will need some type of financing. Dealerships have access to many lending institutions and can generate the paperwork necessary to facilitate a quick transaction. As a private individual, you are unable to offer finance options to prospects who may want to purchase your car.

You may also need to invest some time and money in reconditioning your car to compare with others at that retail value.

Selling a car can take a lot of time and resources. Depending on the type of car, you may invest in a promoted online ad, have to field many calls and messages, and have people you don’t know come to your house and test drive your car. Car dealerships have trained staff, a controlled environment, and marketing resources to promote pre-owned vehicles at retail prices.

When you sell your car privately, the buyer has your name, address and other contact information. If something goes wrong with the car or they have a problem, you’re probably the first person they will call. When a vehicle is traded at a dealership, the customer who traded it can rest easy, knowing that their personal information is not passed on to the next owner, as the dealership assumes responsibility for the car and is bound to protect the privacy of all of their customers.

A proper trade valuation can take as little as fifteen minutes in person. The trade-in process is a secure and transparent way to get the market value of your car without the headache of having to sell it yourself. Additionally, there are also tax savings to be had, and you can acquire your new car quickly and through a complete and professional transaction.

10/24/2019

Do subprime loans hurt your credit?

Any loan, mortgage, credit card can hurt your credit if you do not meet the obligations as outlined in the contract. A subprime loan, like any loan, can hurt your credit if you miss any payments or default on the debt. But it can also help improve your credit if you make your payments on time.

10/24/2019

8 Common Car Buying Mistakes

Some surveys have found that about seventy-percent of us regret the decisions we made when buying our car. The common answer when asked, “I simply made a mistake”. Some buyers felt like they rushed their decision and walked away with a car that

a) Didn’t suit their needs
b) Didn’t fit in their budget

Buying a new car is an emotional experience, and next to a house the biggest purchase most Canadians will make so you need to do it right. Don’t let the Savvy salesman focus on Fit and Finish and not cover the Functionality or how it will work for you and your family.

To do that, let’s go over some common car buying mistakes so you are better educated for when it comes time for your next purchase.

1. Needs VS Wants
2. Research, Research, Research.
3. Total Cost of Ownership - Don’t forget the insurance.
4. Take your time and enjoy the experience
5. Don’t Skip the Test Drive
6. Fixating on the Payment
7. Rolling Over Old Debts
8. Only Skimming the Paperwork

10/21/2019

I am currently in Bankruptcy / Credit Counselling, will I qualify for credit?

There is an old saying that still holds true today, "Sometimes bad things happen to good people". There are a few subprime lending institutions that will deal with someone that is currently in credit counselling or in bankruptcy as long as your trustee will provide a letter authorizing you to enter into a conditional sales contract. This will depend on how long you have been with a trustee and your repayment history with them.

10/19/2019

What does it mean when classified a Subprime Borrower or Customer?

A subprime borrower or customer is an person that has a credit rating that is less than good, under 550 for example. Lenders will usually charge subprime borrowers a slightly higher interest rate on loans, because they are viewed as having a greater risk of defaulting. These loans, however are a great way to start rebuilding your credit and proving to lenders that you should no longer be considered high risk.