Advertisement
Buying your first car in Canada is like any other major purchase. Ask a lot of questions, not just about the vehicle but also the auto loan and more.
Buying a car in Canada can be a daunting task for newcomers to the country, facing unique challenges like a lack of credit history, an unfamiliar selection of vehicles, new regulations, and new financing and insurance options. Below, we’ll dive into the important steps, tips and pitfalls to help newcomers successfully navigate the Canadian car-buying journey. We’ve included insights from Janet Gray, an advice-only Certified Financial Planner with Money Coaches Canada.
According to CanadianAutoDealer.ca, the average transaction price for a new passenger car in Canada is about $46,000, and the average transaction price for a new light truck (pickup or SUV) is about $54,000. Just under 9 in 10 vehicles sold in Canada are light trucks. Fewer shoppers than ever are choosing to drive passenger cars, and fewer automakers are selling them.
Apply for a personal loan with a 8.99% to 24.99% APR. Plus, 100% online application and no early repayment fees.
Apply for a personal loan with a 9.99% to 46.99% APR. Plus, fast e-transfers and no hit to your credit score when you apply.
And how to buy (and get a good deal on) a car in Canada.
Just what is a car loan and how does it work here?
When you get a car loan, you’re borrowing money from a lender to pay for the car, and then you repay it over time.
Car loans have a set length (also known as a term), throughout which you’ll make a series of regular payments, likely every two or four weeks. When the loan term is over, you’ll have repaid the loan, as well as the associated interest. Interest is the cost of borrowing the money to buy the car. Higher interest rates mean “a higher cost of borrowing.” The loan interest rate you qualify for depends on various factors.
CarDealsCanada.ca reports that, in 2021, over 80% of new car purchases and over half of used car purchases were financed, meaning not paid for in cash. Most Canadians use loan financing to buy new cars, and many use it for buying used cars, too. Remember, we’re using the term “car” loosely here, since most Canadians drive trucks and SUVs (sport utility vehicles), not always the typical four-door car. Debt is very common in Canada and is manageable for many.
Once you’ve chosen a vehicle you want to buy and planned out your budget, it’s time to apply for a car loan. This is often done through a bank, credit union or online lender, though many car dealerships have in-house financing departments or lending partners.
When applying for a car loan, you’ll need to provide proof of income (recent pay stubs), proof of address (mail you’ve received), and additional identification (a driver’s licence, permanent resident card). The lender will likely run a credit check to see how much of a financial risk you pose, by assessing your history with credit and how likely you will be to pay the loan back in full. Then the lender will come back with a loan offer and contract, if you’re approved for the auto loan. If that’s the case, you sign the contract, receive the loan funds, and prepare for your regular payments to start.
If you’ve no credit history here, expect things to be more challenging when it’s time to get a car loan in Canada. You’ll likely need a loan secured against an asset, and you may face higher interest rates, limited options for lenders and smaller available loan amounts.
If you’ve recently moved to Canada and you’re about to finance a vehicle, begin by answering these questions—with the help of an expert if necessary.
These will include banks, credit unions, online lenders and auto financing companies owned by dealerships or automakers. Remember, deciding on a car loan is like choosing the car you want—it’s a good idea to shop around for the best deal. Be sure to consider multiple options for car financing, including loan programs offered by major banks that are specifically for newcomers.
“A car loan is secured against the vehicle, meaning that there is less risk for the lender, who could repossess the car if the loan defaults,” Gray explains. “A personal line of credit is unsecured, and a strong credit score and solid work history is required. The amount of the line of credit is based on your qualifications, and it can be increased as your credit score increases. The interest rate is variable, and you have the flexibility of paying the interest only (required) or interest and principal. The interest rate can be higher than the car loan’s, depending on your credit history. You can purchase anything you want using a line of credit. The smart choice depends on your situation and your borrowing qualifications.”
Read: “New to Canada? A new way to transfer your credit score”
Understanding the interest rate on a car loan, often expressed as an annual percentage rate (APR), is crucial to determining the overall cost of borrowing. A high APR or percentage means you’ll pay more in interest over the life of the loan than with a shorter-term loan. Shorter loans tend to have lower interest rates; the same is true for loans with more frequent payment terms, since bi-weekly payments can reduce interest costs versus monthly payments.
Know, though, that the percentage rate only tells part of the story. Understanding the interest cost, or the dollar amount of interest you’ll pay beyond the initial loan amount, is important. You can find out this amount by checking your loan agreement, asking your lender or plugging loan data into an online loan calculator.
Let’s say you’re buying a compact car priced at $30,000. That’s not the only cost. You’ll need to spend a few hundred dollars on fuel each month, plus a few hundred dollars on insurance each month, not to mention the cost of oil changes, servicing, maintenance, and a winter tire and wheel package.
When considering a new or used car or truck, be sure to factor all of these costs into the equation and adjust your budget as necessary.
There are two other points to consider.
First, add-ons like winter tires and wheels, accessories and extended warranty coverages can often be rolled into your loan financing, spreading their cost out over time. So, yes, you will pay interest on those items, too.
Second, some buyers prefer to make a down payment towards their car by paying some portion in cash up front, and then financing the remainder. Making a down payment allows you to take out a smaller loan, which means lower regular payments and interest costs.
Brand-new vehicles come with various warranties that cover their parts and sub-systems from damage and defects for a pre-set length of time. A new vehicle warranty is a two-way agreement: the automaker provides the coverage, and the owner ensures the vehicle is serviced and maintained properly. New car warranties will not cover damage or repairs caused by improperly maintained parts, so be sure to understand and follow your vehicle’s maintenance requirements fully.
If you’re considering a used car, it might still have a factory warranty, depending on its age, condition and mileage. Ask the dealer about this before you buy.
On both new and used cars, you can typically pay for additional warranty coverage. Consider the cost and coverage of add-on warranty packages compared to saving money in your bank account for future repairs.
When buying a used car, it’s wise to get a safety inspection, to ensure the vehicle meets minimum safety standards. A safety inspection is not a warranty, and it does not guarantee the vehicle is in good overall health or free from problems. But it could confirm the car is safe to drive by checking things like the brakes, lights, tires, powertrain and exhaust system.Always have a qualified technician inspect a used vehicle before agreeing to buy it.
When you buy a car in Canada, you’ll encounter additional fees, including sales tax, licensing and registration, documentation fees for new and used cars, as well as the pre-delivery inspection (PDI) fee and an air-conditioning tax for new cars.
In Canada, strict all-in pricing laws require cars to be advertised with pricing that includes most fees but not necessarily sales tax. There are some differences from province to province, which you can check with the help of an authority like the Automobile Protection Association (APA).
“This is not always required, but it could help if your credit score is lower than desired,” says Gray. “Then the dealer doesn’t have to finance as much, so there’s less risk for them. And it will reduce your payment amounts or shorten the repayment schedule (amortization) of the entire loan.”
You’re free to negotiate the price of a car in Canada. You can also negotiate the value of your trade-in (if applicable), or negotiate for a reduction or elimination of certain fees, perks or discounts on add-on warranty coverage or accessories. There are some dealerships that don’t negotiate, but most do.
In under five minutes, compare personalized auto insurance quotes from Canada’s top providers.
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
The Canadian government is sending out the last carbon rebate of 2024. See who’s eligible and how much you...
Sponsored By
Simplii Financial
As part of MoneySense’s 25th-anniversary celebrations, we’ve rounded up 25 notable and highly entertaining financial flicks. Grab the popcorn!
Before taking out a loan, learn the differences between these two types, which has better interest rates, and which...
A weak loonie is discouraging U.S. trips, as extra flight capacity north of the border pushes domestic prices down....
The temporary tax break will save Canadians money, but financial experts caution shoppers to do the math and avoid...
Food prices are likely to increase by 3% to 5% in 2025, but wild cards like climate change and...
Delivery scams are on the rise amid the Canada Post strike and holiday shopping season. Here’s how to identify...
A new EY survey has found that demand for EVs and hybrid vehicles has dropped slightly, with drivers citing...
