Did you know that in 2021, the Canadian government reached its target of just over 400,000 new permanent residents? Interesting, eh?
While that’s great news for immigrants and locals alike, it means that hundreds of thousands of people will likely be looking to understand how vehicle purchase works in Canada. It’s quite a complex subject that includes interest rates, car loans, and more.
Ultimately, if you’re new to Canada and one of the first things on your mind is getting a car, it’s important to understand the process of getting a car loan. Keep reading for our complete guide to car loans in Canada for those who might be new to the way things work here.
What To Know About The Vehicle Purchase Process In Canada
If you’re planning on buying a vehicle in Canada, there are a few things you should know about the process. While it’s pretty similar to the process in other countries, it can vary slightly, so it’s best to inform yourself before you start searching.
How To Find The Right Car
First, you need to find the right vehicle! This can be tricky, as there are a lot of different factors to consider. How big do you need the car to be? What sort of features are you looking for? And most importantly, how much can you afford to spend?
Once you’ve narrowed down your options, it’s time to start doing some research. Read online reviews, compare prices, and talk to friends and family who have purchased cars recently. This will help you get a better idea of what to expect.
Understand How Credit Works In Canada
After you know what your budget for buying a car in Canada is, it’s essential to know that you’ll likely need to have credit in order to get an auto loan. A credit score is a number that basically shows how creditworthy you are. Lenders in Canada use that number to determine whether or not they will lend to you and what your interest rates will be.
However, building credit as an immigrant in Canada can be a bit of a challenge for newcomers, but it’s definitely possible.
Your credit score is based on your credit history. So if you don’t have any credit history in Canada, it can be tough to get started. One way to build credit is to get a secured credit card. This is a credit card where you put down a security deposit, which acts as your credit limit. Then, use the card responsibly by making your payments on time and keeping your balance low.
Another way to build credit is through a co-signer. This is someone who agrees to be responsible for your debt if you can’t pay it off. Co-signing can be a great way to get started with credit, but make sure you choose someone you trust and who has good credit themselves.
Where To Look For Auto Loans In Canada
When you’re shopping for a new car, it’s important to consider all your financing options. If you’re looking for an auto loan in Canada, there are a few places you can look.
One option is to go through a bank or other financial institution. However, you will need to demonstrate, as a newcomer, that you’re able to repay the loan responsibly. This will likely include a credit check. If it does, we’ll get into some tips for that later.
Another option is to work with an auto dealership. Some dealerships have their own financing options, or they may be able to connect you with a lender.
You can also shop around online for auto loans. There are a number of websites that can help you compare different lenders and find the best rate for your needs, such as Canada Drives.
Paperwork & Registration Requirements
Have you finally purchased a vehicle in Canada? Congrats! Now, there’s still some paperwork left (frustrating, we know, but you’re almost done).
First, you’ll need to make sure that the vehicle is properly registered and insured. The paperwork and registration requirements vary from province to province, so it’s important to do your research beforehand.
Once you have all of the necessary documents in order, you can start shopping for your new ride. When it comes time to finalize the purchase of the vehicle, you’ll need to have a valid driver’s license and you’ll need to pay any applicable taxes and fees.
What Is A Car Loan?
Now, if you’re working on building credit as an immigrant then you might be ready to start really learning about car loans. What is a car loan in Canada?
A car loan is a loan that helps you finance the purchase of a car. It works like any other loan: You borrow money and then pay it back over time, usually in monthly payments. The main difference is that a car loan is secured by the car itself.
That means that if you can’t make your payments, the lender can take your car away from you. Car loans are available from banks, credit unions, and other lenders.
The interest rate on a car loan depends on many factors, but it’s typically lower than the interest rate on a credit card or personal loan. That’s because the lender knows that they can always take your car away from you if you don’t make your payments.
Whether or not a car loan is right for you depends on many factors, including your credit history, income, and how much money you’re willing to put down as a down payment. If you’re not sure whether or not a car loan is right for you, talk to a financial advisor (or visit Marble Learn).
The Benefits Of Taking Out A Car Loan
For many people, taking out a car loan is the best option. There are several benefits to taking out a loan as opposed to paying in cash.
First of all, taking out a loan can help you to build your credit score. As long as you make your payments on time and in full, taking out a loan can actually improve your credit score.
Oftentimes, you’re also able to extend the life of the loan. Some loans allow you to extend the term, which can lower your monthly payments. However, this will also mean that you’ll pay more interest over time.
Taking out a car loan can be a great way to finance your vehicle purchase, especially as a newcomer to Canada.
The Different Types Of Car Loans Available In Canada
When you’re shopping for a car, it’s important to understand the different types of financing that are available to you. Here’s a quick overview of the different types of car loans that are available in Canada:
- The Standard Loan: The most common type of car loan, a standard loan is typically offered by banks, credit unions, and other financial institutions. The interest rate on a standard loan is usually fixed, which means that your payments will stay the same for the term of the loan.
- The Lease Return Loan: If you’re returning a leased vehicle, you may be eligible for a lease return loan. These loans often come with lower interest rates than standard loans, making them a good option if you’re looking to save money on your car payment.
- The Cash Back Loan: As the name suggests, a cash back loan allows you to finance your purchase with a lump sum of cash from the lender. The interest rate on a cash-back loan is usually higher than on a standard loan, but you may be able to negotiate a lower rate if you have good credit.
While there’s no set rule as to which is best, it pays to speak with a financial advisor to really consider your options!
Things To Consider Before Taking Out A Car Loan
Before you sign on the dotted line for the car loan, you want to be sure it’s the right choice for you and that you’re getting the best terms. However, outside of that, what else should you consider?
First, consider the length of the loan. A longer loan will mean lower monthly payments, but you’ll end up paying more in interest over time.
Then, think about the interest rate. A higher interest rate will mean you’re paying more money in the long run. It’s important to shop around and compare rates from different lenders before making a decision.
If your interest rate isn’t great, it ultimately might be worth waiting a bit so that you can improve your credit score and get a lower interest rate.
Because high-interest rates can cost you thousands over the life of a loan, it’s well worth waiting an extra few months if you’ll be able to increase your score and get a much better rate.
And finally, be aware of any fees associated with the loan. Some lenders charge origination fees or prepayment penalties, so it’s important to read the fine print before agreeing to anything.
How To Get the Best Interest Rates On A Car Loan in Canada
If you’re looking to get the best interest rates on a car loan in Canada, there are a few things you
can do.
First, shop around. Talk to your banks and credit unions and see what they’re offering. It’s also a good idea to get pre-approved for a loan before you start shopping for a car. This way, you’ll know how much you can afford to spend and you won’t be tempted to overspend.
Second, and most importantly, make sure your credit score is in good shape before you apply for a loan. The better your credit score, the lower the interest rate you’ll be offered. New to this whole Canadian credit thing? Here’s how to improve your score…
How To Monitor & Improve Your Credit Score
A good credit score can save you money on loans and help you get approved for new lines of credit, while a bad credit score can lead to higher interest rates and make it difficult to qualify for new accounts.
Here are a few simple steps you can take to monitor your credit score and improve your chances of getting approved for the best possible terms.
Regularly Check Your Credit Score For Errors
After you’ve settled into life in Canada, you’ll need to open a line of credit that will get reported to one of the two credit bureaus (TransUnion and Equifax). If you’re just starting out, a secured credit card is a fantastic way to do this.
Then, build your credit over time. Make on-time payments each month and monitor your score as you go. Checking your credit score on a regular basis can help you catch any errors that may have occurred, such as incorrect late payments or incorrect balances.
Set Up Autopay
Have poor credit or are building credit? Have trouble staying on top of payments?
One of the easiest ways to improve your credit score is to set up autopay for your bills. When you have autopay set up, your payments will be automatically deducted from your bank account each month, so you’ll never have to worry about forgetting a payment or being late.
This will help you avoid any late fees or penalties, and it will also show creditors that you’re responsible and reliable. Another benefit of autopay is that it can help you stay on top of your finances by providing a clear picture of where your money is going each month.
Keep Your Credit Utilization Low
Your credit utilization is the amount of debt you have compared to your credit limit. The lower your credit utilization, the better. Keep it below 30% for the best results.
This means that if your new secured card comes with a limit of $1,000, you won’t want to have a balance of more than $300 at any given time.
Don’t Apply For New Accounts
Every time you apply for a credit card or loan, the lender will pull your credit report, which can cause your score to dip slightly. If you’re not in the market for new lines of credit, there’s no need to risk a temporary drop in your score.
Learn About Finances in Canada
Outside of needing to build credit in order to apply for a car loan in Canada, there’s a lot to learn about finances as a newcomer here. From vehicle purchases to property taxes, we know just how confusing it can be. We’re here for you, though.
We want to break down the barriers between you and the life you want. The road to better finances can seem like a maze sometimes, and we want to be your guide.
Join MyMarble to get help with everything financial, from credit and debt to budgeting and more! Ready to start your journey with us? Get started for free.
