Reading a car loan offer: APR, term and total cost of borrowing

When you finance a vehicle, the most important document isn't the window sticker or the sales worksheet. It's the disclosure statement. Federal and provincial consumer protection laws require your lender or dealer to give you one before you finalize the agreement, according to the Financial Consumer Agency of Canada. Here's how to read it.

What the disclosure has to show

AMVIC explains that Alberta's Consumer Protection Act requires lenders to disclose:

• a complete description of the vehicle
• the cash selling price
• the down payment or trade-in allowance
• a breakdown of all costs, fees and other charges
• the credit charge, written out in dollars
• the annual percentage rate (APR)
• the amount of each payment, how many payments there are, and when they're due
• what extra you'll be charged if you fall behind

If any of these are missing or unclear, ask before you sign.

The numbers, in plain language

Amount financed

The amount you're actually borrowing: the price, plus anything added to the loan (taxes, add-ons, any negative equity from your trade-in), minus your down payment and trade-in. Check this line carefully. It's where optional products and old debt show up.

Credit charge (cost of borrowing)

What the loan costs you in dollars over the full term, on top of what you borrowed. This is the single best number for comparing two offers for the same vehicle and amount.

APR

The cost of borrowing expressed as a yearly percentage. It's useful for comparing offers with different terms or fees. Make sure you're comparing APR to APR, not an APR to a "rate" quoted some other way. Canada's Criminal Code also sets a maximum legal ("criminal") interest rate for most loans.

Term

How long you'll be paying. The FCAC puts it plainly: the longer the term, the lower the payments, but you'll end up paying more interest. Lowering a payment "to fit your budget" usually means stretching the term. A long term also means you may owe more than the vehicle is worth for longer, which matters if you trade it in early.

Payment schedule

The amount, the frequency (monthly, bi-weekly or weekly) and the number of payments. Multiply the payment by the number of payments, then add your down payment. That's roughly what you'll pay in total, and it should line up with the cash price plus the credit charge.

Add-ons: optional means optional

Extended warranties, protection packages, creditor life or disability insurance, and theft-deterrent etching are often added to the loan, and you pay interest on them. AMVIC says to decide in advance whether to accept or decline them. It also says a business must not mislead you into thinking a fee is mandatory when it isn't, and that no consumer should be forced to accept extra products. On an advertised vehicle, Alberta's all-in pricing rule means the advertised price must already include every fee except GST and financing costs.

How to compare two offers fairly

Use the same vehicle, the same down payment and the same trade-in for every offer, then line them up:

Check	Offer A	Offer B
Amount financed (same add-ons in both?)
APR
Term (number of payments)
Credit charge in dollars
Financing fees
Penalty for paying off early?
Charges if you miss a payment

The FCAC suggests getting quotes from several dealers and lenders, and notes that some fees, such as dealer administration fees, may be negotiable. A dealer doesn't have to show you the lowest rate available, so ask to see offers from more than one lender. You'll usually need to sign a credit application to get a quote, but the FCAC says not to sign anything else, like a sales agreement, until you've decided.

Before you sign: a last checklist

1. Every number matches what you agreed to, and every promise is in writing.
2. You know which add-ons are in the loan, and you wanted each one.
3. You know whether any deposit is refundable, and you have a receipt.
4. You have a copy of the disclosure statement and the bill of sale.
5. You've only signed with one dealer. The FCAC warns you may not be able to get out of either contract if you sign two.

In Alberta there's no cooling-off period on a vehicle purchase. AMVIC says the dealer can enforce the contract even if you change your mind, unless the seller has a policy that lets you cancel. Ask about that policy, in writing, before you sign.