Financing a vehicle purchase can be an exciting endeavor, but it can also be fraught with risks and
uncertainties. Many consumers may overlook critical aspects of vehicle financing that can have long-
lasting consequences on their financial health.

Financial risks of GAP insurance
Guaranteed Auto Protection (GAP) insurance is designed to cover the difference between the actual
cash value of a vehicle and the balance still owed on the financing. While it provides a safety net, it’s
important to note that GAP insurance can come with its own set of financial risks. Buyers must be aware
of the terms and conditions, including coverage limitations and exclusions. Understanding these
nuances can prevent unexpected financial burdens in the event of an accident or theft.

The long-term loan pitfall
One of the most significant risks in vehicle financing is the potential for negative equity. This occurs
when the value of your financed vehicle depreciates faster than you can pay down your loan.
Understanding the impact of long-term loans is essential in mitigating this risk. While a longer loan term
may seem appealing with lower monthly payments, it can lead to a situation where you owe more on
your vehicle than it’s worth.

Financing rates
Contrary to popular belief, dealers may not and are not obligated to disclose the best financing rate
available to you. This lack of transparency can result in consumers paying more in interest over the life
of their loan. It’s important for consumers to research rates that are offered by the manufacturers,
banks and any other independent financial institutions you may encounter during your vehicle purchase
journey.

Dealer commissions from financing firms
Another risk in vehicle financing is the potential conflict of interest when dealers receive payments or
commissions from financing companies they recommend. This financial incentive may not always align
with your best interests.

To navigate the complex world of vehicle financing successfully, consider these tips:

1. Research rates: Consumers should research their financing options. Most dealerships and
   manufacturers advertise their rates, and you can always call and ask them to confirm the rates
   available on the particular vehicle you’re in the market for.
2. Understand your credit score: Your credit score plays a crucial role in the financing process.
3. Review financing agreements: Carefully review all financing agreements and contracts before
   signing. Ensure you understand the terms, including interest rates, fees, and penalties.
4. Dealer transparency: Confirm with the dealer the information they are submitting about you to
   financing companies and how many companies they are approaching. This can help you avoid
   multiple credit inquiries that can negatively impact your credit score.
5. Understanding finance agreements/contracts: Finance agreements and contracts are complex
   legal documents that can be overwhelming to consumers.

In the world of vehicle financing, understanding the associated risks is crucial for making informed
decisions that protect your financial well-being. OMVIC serves as a valuable resource and advocate for consumers facing the complexities of vehicle financing. Don’t let the risks of financing catch you off guard; reach out to OMVIC today and drive confidently into the future.

OMVIC has been delegated responsibility for administering and enforcing the Motor Vehicle Dealers Act (MVDA). Visit omvic.ca (omvic.ca) to learn about your consumer rights when you purchase from an
OMVIC-registered dealer and sign up for OMVIC’s monthly newsletter.  
 
Contact OMVIC’s consumer support team at [email protected] or 1-800-943-6002 for advice and
answers to all your car-buying questions.  
 
OMVIC also offers free education services and webinars for consumers upon request, email
[email protected] for more information on our services and materials.  
   
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