How to get a car loan if you are a new Canadian
How to get a car loan if you are a new Canadian
Posted on December 15, 2021
Canada is a land of opportunity and immigrants have contributed much to the success of the true north strong and free.
If you are new to Canada and want to buy a car, our Waterdown auto loans team are going to provide insight on how to get a car loan without getting ripped off in the process.
Canadian driver’s license
Before you can drive and buy a car as a new immigrant to Canada, you’ll need a Canadian driver’s license. Your old one won’t be valid as you’re not a tourist so you’ll need to get one as soon as possible.
You’ll need three official forms of ID and an official document from your original driving license authority to get your Canadian driver’s license.
You’ll need the license to be able to get car insurance and to register a vehicle, both of which are mandatory here.
You need a valid SIN to get a car loan
The first thing you will need to get a car loan in Waterdown is a social insurance number (SIN).
This should have been issued when you received your permanent residency and once your citizenship was approved, you would have received a permanent social insurance number.
This is a number used by the government for taxation purposes and also for identification. If you do not have a SIN, you cannot open a bank account or do anything credit-wise in Canada.
A credit score is a 3-digit number that shows how likely you are to default on a payment arrangement.
The higher the score, the lower the risk of you not keeping your obligations. There are two major credit reporting agencies in Canada, TransUnion and Equifax; you can sign up for free credit monitoring with each one.
If you have a credit score over 680, you will have an easy time getting a car loan at competitive interest rates.
However, even if your credit score is under 600, if you need a vehicle, there are lenders that will approve your loan.
Build a credit history
The first challenge you’ll face trying to finance a car loan as a newcomer to Canada is not having a credit score. Any that you built in your home country doesn’t count as soon as you leave, so you have to start over.
We recommend doing this right away.
Get a secured credit card or credit card from your bank if it has a presence in Canada. Then use that card regularly. Set up automatic payments and begin getting entries onto your new credit report.
Get a phone contract that makes entries on your credit report, use a landlord or utility company that does the same if you can.
Reviewing your credit report
You will need to review your credit report to make sure there are no mistakes. Mistakes do happen from time to time, one of the most common is the wrong mailing address on your report.
You can dispute these errors by following the steps posted on TransUnion and Equifax’s respective websites.
Get some income
Chances are, you came to Canada with a job offer or place at a university. Both are good ways to build a new life and can help with getting some income.
You’ll need to pay your auto loan and will need a demonstrable income to do that. You’ll need 3-6 salary statements or wage stubs or be a Ph. D student. If you have a part time job alongside your studies, that will help too.
While the amount you earn is a factor, the regularity of that income is most important. As long as you can afford the loan on top of your other outgoings, you should be fine.
You will need to prove it though.
Save a down payment
If you didn’t have an amount set aside for a down payment on your arrival, now is a good time to begin saving. The more of a down payment you can put down, the easier you’ll find it to get an auto loan.
A down payment offsets some of the risk of lack of credit history and a low credit score. The more you can put down, the more likely you are to qualify for the loan.
There is no magic number but we would recommend a minimum of 20% as a newcomer to Canada.
Documenting your income
Canada uses a “trust but verify” approach when it comes to loan underwriting. Lenders are going to look at your credit score and your income when making a decision on whether they will approve your Waterdown car loan.
To prove your income, you will need to provide copies of your latest pay slips and bank accounts. The more information you are able to provide the lender, the greater your chances of getting the loan approved.
Establishing a budget to service your car loan
Something that all Canadians need to do, yourself included, is prepare a budget.
If you are not budgeting, how do you know if you will have enough money to cover all of your existing obligations plus the car payment?
A budget is not complicated; you just key in how much income you have and list all of your obligations, including the total amount owed and minimum amount due.
It will become clear after creating the budget how much money you can put towards a car payment.
The average car payment in Canada is just over $500, and the average car loan has a term of 84 months.
Sources of competitive auto loans
You may be tempted to apply for a car loan through your local bank. While this may be convenient, you could end up paying a substantially higher interest rate than what you would pay if you used our preferred approach.
The best source of competitive auto loans in Canada is by going to a car dealership in your area. These dealerships are going to have access to wholesale lenders from around Canada.
With interest rates at historic lows, you will be able to access interest rates that the average consumer cannot access online.
An added benefit of working with a local dealership is they have cars you can actually buy right away. There is a shortage of new and used cars for sale in Canada, this shortage is here to stay for a few years so you will need to be proactive if you want to buy a car.
During your discussions with the car dealership, if you are having any credit issues or questions, they will be able to help explain things to you. The same dealership can also help show you how to boost your credit score which reduces your overall cost of borrowing.
Now that you know how to get a car loan in Canada, you can reach out to your local dealership and discuss your options, you are going to feel amazing driving around in your new car but you must pick up the phone now.
We will use all our skill and experience to deliver the lowest possible Waterdown auto loan rates, guaranteed. Contact Car Nation Canada Direct to learn how we can help.