Asking the right questions before buying a car

Caroline has just completed her hairdressing course and landed her first job. To make her commute easier, she decides to buy a car. What seemed like a good idea at first unfortunately turned into a financial burden.

In the past, Caroline had some setbacks and unpaid bills with cell phone companies, which have negatively affected her credit history. Additionally, at the age of 22, she hasn’t had the opportunity to establish a track record yet. «Having little credit history can unfortunately be as detrimental as having a bad history», warns Pierre Fortin, licensed insolvency trustee and president of Jean Fortin & Associates.

When she applied for financing to purchase a vehicle from a dealership, her request was denied. However, she was lured by an advertisement from a merchant claiming that no credit applications would be turned down. Believing she was getting a good deal, she had just shot herself in the foot.

Sales Tactics
Caroline chooses a used car, a Honda Civic hybrid with 199,000 kilometers on the odometer. The salesperson quickly glosses over the contract details, instead asking her how much she can afford to pay per month and making an offer that seems to fit her budget. The initial asking price for the vehicle is $10,750, plus taxes.

Delighted to see that the loan repayment fits within her affordability, Caroline didn’t check if the sale price was reasonable. She also didn’t ask the seller about any additional fees that could be added to the bill, such as administrative fees, mandatory life/disability insurance, extended warranties, rust protection, excessive wear protection, low mileage fees, and high mileage costs in the case of a lease, among others.

Costly Fees
Caroline opted for the disability insurance required by the dealership, which cost her $1,735. Additionally, the merchant charged her $599 in «acquisition fees», which, financed at 21.9%, added $3,534 to the purchase price. In the end, the vehicle will cost her $23,219 over 4 years, including sales taxes, resulting in weekly payments of $111 or $483 per month.

After 2 years, facing financial strain, Caroline sought advice from a licensed insolvency trustee. «She still owed $15,011 on her loan for a vehicle currently valued at $5,900 and soon requiring significant repairs», mentions Pierre Fortin. In her case, Caroline has the option to surrender the vehicle to the trustee as part of a consumer proposal or bankruptcy, thereby eliminating her debt.

Individuals with poor credit history are generally subject to higher interest rates imposed by dealerships, whether it’s a sale or a lease. «Nevertheless, there is a lot of competition in the used car market, and you can save a lot of money by not only shopping for the right model but also the right merchant. The purchase price is not the only factor to consider; additional fees and requirements from one merchant to another can significantly inflate the final cost of the vehicle», says Mr. Fortin.

Advice

• You’ve signed the contract, and now you’re being offered to go to the «other office» to explain the various related products? This is where costs start to add up with extended warranties, rust or stain treatments, etching, new car replacement insurance, etc. that they will offer you. Don’t make any decisions on the spot; take your time to think it through calmly.
• The Consumer Protection Act allows a merchant financing a purchase or lease to require the consumer to have life or disability insurance. However, they cannot force you to obtain it through them. Insurance you already have (such as group insurance through work) may suffice. If you still need insurance, shop around yourself, as premiums can be