car loan and credit insurance question

[bas12]

I am buying a 3 year old car through dealership, and they are applying for financing for me. They told me that they received some conditional loan approvals from banks, and the condition is GAP and credit loss of employment insurance. Does this sound legit? I heard that credit insurance cannot be required to get a loan in the US, but I could not find any information about similar Canadian laws.
Insurances cost about 3500 over the term of 5 years for about 20000 price of the car.

Some details: I landed in Canada 6 months ago as a PR, and I only had my job for 2 months. The job pays well, but I'm still on probationary 3 month period. My credit score is in mid-upper 600 (it went down 100 points because I moved and had to buy a lot of things, and I didn't realize that credit card balance affects the score that much, even if you pay it off in full every month.) The car is probably worth about a few hundred to 1000 less than what I agreed to pay for it before all the fees get added on.

So, with all this, maybe insurance is a good choice at least for the first year, considering possibility of losing my job and that the car is a bit overpriced at the moment. However, I'm curious how common this is. Do bank actually do this, or did the dealer invent the whole story to get the commission?

Do people have experience with cancelling this type of credit insurance after 1-2 years? Did you get a prorated refund?

 

[BC4life]

I am sure this is not what you wanted to hear but why not save and pay a cheaper car in cash? You can easily find a reliable Japanese car that is enough to take you to and from work safely for 5 to 8K. This would save you on the hassle and unnecessary fees. This is what I did (I landed last year) and my only car expenses are insurance (relatively high) and gas.

 

[bas12]

I already signed some papers, so backing out is difficult now. So, I'm interested in other people's experience with these types of loans while having short credit history.

Buying cheaper cars with cash is what I have always done before, however I didn't find that it is easy to find a used reliable car that the owners suddenly decide to get rid of. Especially in Toronto area, since it sounds like the cars rot within 10 years here because of the salt. I figured that getting something a bit newer from the dealership would save on the hassle of going around the city to see lots of cars, paying for PPIs, then doing my own safety inspection, and on putting a lot of time into maintaining it later, and having to buy a new one in 1-3 years. I had some bad experiences with clunkers that needed a lot of care in the past. Also, I have only one parking spot with my apartment, so I cannot have a pool of old cars, only some of which are running.

So, the goal was to save some time to be able to focus on my work and hobbies instead. I expected that buying from the dealership would be easier. If I knew about the hassle of getting financed, I might have gone the clunker route, or at least waited until I have been on the job for 3 months. I still might if this deal falls through.

 

[russ6970]

As you have only been in the country for 6 months, the banks want to protect themselves, so additional insurance is asked for. Have you asked the company if you NEED to take them? It's hard getting on the credit ladder here. I'm in Newfoundland and had to pay cash for my first two cars, as the interest used car dealers charge is extortionate. I've been here just over 3 years now and bought a brand new car instead of paying the interest fee's. To be honest the difference was not that much and you are getting a brand new car. I would say (in my experience), buy your first couple of cars cash and build your credit score up a bit, before going down the other route.

 

[sid1987]

so, i am 8 month old in canada... yes.. your low credit history can make some banks put conditions... like walkaway.. which ahrdly costs 299 to 500 but it covers bank and dealership if your financial equation changes.
GAP: may or may not be...as per me it is never compulsory, but for new people they might push for it.

Bank is trying to trust you, with some conditions to save them.

 

[BC4life]

I already signed some papers, so backing out is difficult now. So, I'm interested in other people's experience with these types of loans while having short credit history.

Buying cheaper cars with cash is what I have always done before, however I didn't find that it is easy to find a used reliable car that the owners suddenly decide to get rid of. Especially in Toronto area, since it sounds like the cars rot within 10 years here because of the salt. I figured that getting something a bit newer from the dealership would save on the hassle of going around the city to see lots of cars, paying for PPIs, then doing my own safety inspection, and on putting a lot of time into maintaining it later, and having to buy a new one in 1-3 years. I had some bad experiences with clunkers that needed a lot of care in the past. Also, I have only one parking spot with my apartment, so I cannot have a pool of old cars, only some of which are running.

So, the goal was to save some time to be able to focus on my work and hobbies instead. I expected that buying from the dealership would be easier. If I knew about the hassle of getting financed, I might have gone the clunker route, or at least waited until I have been on the job for 3 months. I still might if this deal falls through.

It makes sense. I was not really talking about clunkers. You can get a 2011 Korean or Japanese SUV, or a 2012-2014 Sedan with less than 130K kms in excellent condition for 7-10,000. You can avoid private sellers and go to autotrader.ca to compare dealerships near your location. Most have car proof reports through which you can check the accident history or any previous major repairs.

Good luck with the financing from the dealership but as far as I know their rates are quite high. Have you checked with the bank you get your salary deposited at? If you have a decent down payment they may be able to work out a deal for you and usually the rates should be better than from car dealerships.

 

[bas12]

Good luck with the financing from the dealership but as far as I know their rates are quite high. Have you checked with the bank you get your salary deposited at? If you have a decent down payment they may be able to work out a deal for you and usually the rates should be better than from car dealerships.

I've been meaning to try to go to my bank branch, but it so happened that I moved, and it is difficult to get there without a car now. Also, their working hours are not great.
Dealership says that they applied with my bank, and the bank had no interest in giving me a loan. But it made 3 separate inquiries to both credit agencies. I don't know if I would get a different answer if went there in person.

Actually, I wanted to make a 5000 down payment in the beginning, but the dealer said that it doesn't make any difference for lenders, and we changed it to 1000. Now that I am thinking about it, it would probably make GAP insurance unnecessary.

 

[russ6970]

If you have 5000 just buy a car for cash

 

[bas12]

To follow up on this, in case anybody will find it useful:
I called the bank that extended the loan. It turned out that all credit insurances are optional, so the dealership was not honest in this respect. They probably receive a commission from these types of add-ons. The bank says that I can cancel the insurances at any time, and this will not affect my loan.
This type of insurance can be cancelled within 30 days for a full refund, if it cancelled after that, it is prorated using a special formula. I think if I would cancel after 1 month, I would still lose about 20% of total premium. So I figured I'd keep it for a few more months, until my situation in Canada stabilizes some more.

The dealership was one of Toyota dealerships in Toronto.