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New to Canada? Here’s 4 Things to Know About Car Loans

By Jacob Henriksen-Willis

Published January 4, 2024 • 4 Min Read

Many newcomers to Canada have found that purchasing a vehicle is a much different process from what they’re used to. Come to the dealership prepared with the terms and expectations of auto financing in Canada to prevent any unwanted surprises.

For many newcomers to Canada, a car can help make life much easier, but buying one isn’t necessarily the same process as it is elsewhere in the world.

Unless you have the money to buy a new car upfront, you’ll likely have to take out a loan to finance your vehicle. It’s important to know what you’re signing up for — and how to find the best deal.

1. What are auto loans?

An auto loan is money borrowed from a bank or a car dealership to buy a vehicle. Auto loans have a specific amount of time or “term” for you to pay back the amount you borrowed.

Payments are usuallymonthly, weekly or every two weeks (bi-weekly) until the loan is paid back and your term ends. Each payment period, you’ll pay a pre-arranged portion of the loan plus “interest.”

Interest is a fee the lender charges you to loan you money. The interest is usually shown as a percentage of your total loan. Different lenders will have different interest rates, so you can check out multiple dealers before applying for a loan to ensure you get the best deal.

2. How can I qualify for an auto loan?

A lender will usually evaluate your credit history, income, employment information and debt obligations to determine whether you qualify for an auto loan (and the amount of money they’ll be willing to lend you).

You’ll need to show proof of residence and identity before you can qualify for a loan. You can use your PR card or driver’s license and a recent electric, water or telephone bill to prove your residency. The last pieces of documentation you’ll be asked for is proof of income and employment, usually in the form of pay stubs, bank statements and employment letters. Be sure that you have records going back at least three months.

If you have a Canadian credit score, the 640 range is about the lowest you can go and still have a chance of getting approved. However, if you don’t have a credit score in Canada, don’t worry! It is still possible to take out an auto loan.

3. How can I take out a loan without a credit history?

Because immigrants come from different financial backgrounds, some lenders have auto loans specifically to help newcomers without a credit history. In addition to providing documentation of your income and proof of residence, a downpayment may be required to secure a loan.

So, if you are a permanent resident or a foreign worker and have lived in Canada for less than three years, you may still qualify for an auto loan — even if you don’t have a credit history in Canada!*

Check out RBC’s Car Loans for Newcomers to Canada hub for automotive financing specifically tailored for Newcomers to Canada.

4. How can I get the best deal on a loan?

After you’ve found a car you’d like to buy, you’ll apply for a loan to pay for it. Most of the conversation about your loan will be focused on your interest rate and negotiating the best terms.Interest is shown as a percentage of your total loan, so the lower the number, typically, the more money you’ll save.If you have a low interest rate and a long repayment term, you may be spending more on interest over time than a shorter term.

Remember, factors such as your credit history and income can cause the interest rate to vary significantly. Before you start shopping, get an understanding of baseline interest rates in market.

It’s also important to remember that finding a good deal isn’t as simple as getting your monthly payments as low as possible. The total amount of your loan payments is what matters most, not just your monthly expenses.

Newcomers may be eligible for an RBC car loan even if you have no Canadian credit history.* Check out RBC’s Car Loans for Newcomers to Canada hub for automotive financing specifically tailored for newcomers to Canada.

—*Available to permanent residents and temporary foreign workers who have been in Canada for less than 3 years. Down payment of up to 15% may be required. Maximum financing term is 96 months with a maximum loan amount of $75,000. Note: for investor class permanent residents, there is no maximum loan amount. No credit history required on vehicles less than 10 years old, provided you meet all of the eligibility and credit criteria of Royal Bank of Canada.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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