If you are thinking about buying a new car in Canada, there are many different types of cars to choose from that will fit different budgets, lifestyles, and driving habits. If you are coming from a country with a smaller selection of cars, this can be overwhelming at first. A new car is usually the second most expensive purchase after a house, so it is important to do some research to figure out which car will work best for you.
Before buying a new car, consider if you need one. Most large cities have extensive transit systems that are convenient and cost-effective. You could also buy a used car. If you still want to buy a new car, here are some things to do and think about.
What Is A Car Loan?
In Canada, a car loan is a type of loan that is used to finance the purchase of a car. Now, if you’re working on building up credit as an immigrant, you may be ready to start learning more about car loans. In Canada, a car loan is a type of loan used to finance the purchase of a vehicle.
A loan that helps finance the purchase of a car is called a car loan. It is paid back over time, usually in monthly payments. The loan is secured by the car itself.
If you’re unable to make payments on your car loan, the lender can repossess your vehicle. Car loans are available from banks, credit unions, and other financial institutions.
The interest rate on a car loan is typically lower than the interest rate on a credit card or personal loan because the lender knows they can take your car away from you if you don’t make your payments.
There are a few things to consider before taking out a car loan, like your credit history, income, and down payment. If you’re not sure if it’s the right move, talk to a financial advisor.
The Benefits Of Taking Out A Car Loan
There are several benefits to taking out a loan as opposed to paying in cash, including the ability to purchase a more expensive car.
A loan can help improve your credit score if you make payments on time and in full.
Oftentimes, it is possible to extend the life of the loan. Some loans allow borrowers to extend the term, which can lower monthly payments. However, this will also mean that more interest will be paid over time.
A car loan can be a great way to finance your vehicle purchase, especially if you’re new 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.
Although there is no specific rule, it is useful to talk to a financial advisor to carefully consider your options.
10 Things To Consider Before Taking Out A Car
1. Do Your Research Before Buying a Car
You should speak to people who have the same car as the one you’re interested in, in order to get an idea of their experience. This way you can learn helpful things such as how reliable the car is, how much it costs to repair, and much more. Also, try not to be too brand loyal as the quality difference between domestic and imported brands has decreased over the years.
You can also research Canadian automotive websites that are full of reviews and road tests for all types of vehicles. Specific factors to research include:
- Fuel economy
- Running costs
- Depreciation and eventual resale value.
Make sure to compare the price of the car you want to buy to the prices of similar cars from its competitors.
2. Know How the Pricing System Works
It can be beneficial to know the difference between the suggested retail price and the dealer invoice price before buying a new car.
3. Take a Test Drive Before You Buy a Car
It’s important to test drive a car before you buy it. The dealership will let you take a 30 minute test drive so you can see how it drives and feels. If someone else will be driving the car, make sure they come along so they can see the controls and features. You can also bring your family to see how much room there is in the back seat.
You can also test drive a car you’re considering buying by renting it for a longer period of time. This will allow you to experience the car and its benefits more, or you may find that it doesn’t meet your needs. In any case, taking a test drive is a crucial first step before purchasing a car.
4. Decide to Lease or Buy a Car
You have two types of financial agreements to consider when buying a car: buy or lease a vehicle.
You have a few different options when it comes to paying for a car. You can either lease or buy a car. If you lease a car, you will have to make monthly, weekly, or bi-weekly payments. If you buy a car, you will have to make a down payment and get a loan from a bank. You will then have to pay interest on the loan.
Instead of borrowing the entire purchase price of the car, you only borrow the amount that the car will depreciate in value over the duration of the lease. For example, with a three-year lease, you would only need to finance the difference between the purchase price and the residual value, taking into account regular wear and tear. This is why lease payments are generally lower than loan payments.
5. Make the Deal to Buy a Car
If the test drive goes well and you’re ready to buy a car, use the information you researched to work out a fair price. The price should take into account any factory and dealer rebates, discounts, and incentives. It is a good idea to have this information in a report to use as a negotiating tool when dealing with a salesperson.
Your research can help you negotiate the best price on a new car and save you money. The key to successful negotiation is to allow the dealer to make some profit, but not all of it at your expense.
During the buying stage, the cost of the car can go much higher when the salesperson tries to sell dealer-installed extras such as:
- Roof racks
- Fabric protection
- Paint protection
- Entertainment systems, and
Most of the time, dealerships mark up the price of options in order to make more of a profit, even if it means the customer saves less money overall. These extra costs aren’t necessary, and if there are options you want, it will drive up the price of the car. Try to negotiate the price of the options as well, or look into adding them later from another source for a reduced price.
6. Regularly Check Your Credit Score For Errors
After you’ve settled into life in Canada, you’ll need to open a line of credit with a credit bureau (TransUnion or Equifax). A secured credit card is a great option for people who are just starting out.
Then, try to improve your credit score over time by making timely payments each month. Keeping track of your score regularly can help you identify any potential mistakes, like late payments or incorrect balances.
7. Set Up Autopay
If you have poor credit or are working on building up your credit, you may have trouble staying on top of your payments. This could cause problems if you’re trying to take out a loan or get a credit card.
One of the easiest ways to improve your credit score is to set up electronic payments for your bills. When you have electronic payments 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.
Setting up automatically payments for your bills can help you stay on top of your finances, avoid late fees, and penalties, and show creditors that you’re responsible.
8. Keep Your Credit Utilization Low
The amount of debt you have in relation to your credit limit is called your credit utilization. A lower credit utilization is better. You should keep it below 30% for the best results.
This means you should keep your balance below $300 at any given time if your new secured card has a limit of $1000.
9. Don’t Apply For New Accounts
When you get a credit card or loan, the company will check your credit score. This may cause your score to go down a bit. If you’re not looking for new credit, there’s no need to worry about your score going down.
10. Consider the Best Time to Buy a Car
There are different Canadian automotive websites that show what manufacturers and dealers are offering incentives and for what models. Also, some good times to look for and buy a new car include:
- Slow sale periods in the winter
- End-of-year inventory clearances, and
- End of the month when a car dealer is making way for new models.
Car dealers may offer other appealing deals to new car purchasers like zero interest payments, affordable financing rates, leasing rates, and cash rebates.
Learn About Finances in Canada
There’s a lot to learn about finance as a newcomer in Canada, from vehicle purchases to property taxes. We know how confusing it can be and We’re here to help.
Our goal is to help you navigate your way to financial success. We want to provide you with the tools and resources you need to make informed decisions about your money. We believe that financial education is the key to success, and we are dedicated to helping you achieve your financial goals.