If you are new to Canada or a student with little or no credit history, you might find it difficult to qualify for a car loan. Traditional lenders, including banks and credit unions, will typically look at your credit report when deciding whether to approve a loan, so it’s important to start building credit as soon as possible. In this post, we offer several tips to help you establish a credit history and boost your credit rating over time.
How to Build Your Credit in Canada
If you have little or no credit history, there are several easy ways to establish credit in Canada right away.
1. Apply For a Credit Card
Several banks offer products and services designed to help newcomers to Canada get set up. These include access to credit, savings accounts, safety deposit boxes, mortgages, investments and worldwide money transfers. Take a look at the RBC Newcomer Advantage and BMO New Start Program for more information.
If you’re a student, your first experience with credit is likely to be a student credit card. Many banks offer credit cards with proof of enrollment in a post-secondary course. As a student, you will benefit from a no-annual-fee credit card and can take advantage of cashback and merchandise rewards. Scotiabank and TD Bank have great options for students.
2. Build Your Credit by Paying Rent
Your rent payment history only counts if your payments are reported to one of Canada’s two major credit bureaus, TransUnion and Equifax. Your landlord typically won’t report any rent payments, but there are options to tie these payments to your credit report.
Ask your landlord to report your payments by signing up with the Landlord Credit Bureau. While this helps you to build credit, they also gain benefits for signing up. Other similar options to link your rent payments to your credit score include Borrowell and Billi Boost.
3. Pay Your Bills On Time
Bill payments, including gas, electricity, and phone bills, are also reported to the credit unions. Be sure to pay all of your bills in full and on time to build a good credit score.
4. Apply For a Bad Credit Car Loan
If you want to purchase a car, consider applying for a bad credit car loan. Bad credit car loans are a great way to purchase a car and boost your credit score; they are ideal for borrowers with little or no credit history.
There are several pros and cons of bad credit car loans. The main drawback is the higher loan rates which can be as low as 9% and go up to 46%, so be sure to shop around when securing a loan. At Insta Auto Solutions, we specialize in car loans for individuals with bad credit—book a call with our finance team to learn more.
How Do Bad Credit Car Loans Help You?
Although a bad credit auto loan may be the only option available to you as a newcomer or student with little or no credit history, it does offer a great solution to build up good credit. When you start to establish your credit history and boost your credit score, lenders will view you favourably and offer you better loan terms. Individuals with good credit scores often qualify for lower interest rates, so the cost of borrowing is much less.
Documentation For Newcomers to Canada and Students
When you apply to finance a vehicle, you need to submit several documents to your lender. The requirements are different for newcomers to Canada and students, so prepare your documents ahead of time to speed up the approval process.
Documentation for Students
If you are a domestic student, a Canadian passport or permanent resident card is proof of residency. You also need proof of income and can submit an employment letter and several months’ worth of pay stubs to the lender.
International students must also present a valid student permit issued by Citizen and Immigration Canada and show a valid work permit and proof of employment as evidence they have enough income to repay the loan.
While international students can apply for a loan, the loan terms may be limited depending on the length of your student permit. If your visa is only good for two years, you will not get a loan term that extends beyond two years, so keep this in mind when you are factoring in the payments.
Documentation For Newcomers to Canada
Immigrants to Canada must also show work permits and permanent resident cards as proof of residency. Also, remember to bring your letter of employment, pay stubs, and bank statements as evidence of your financial standing.
General Document Checklist
Proof of identity – Canadian Passport, Canadian Drivers Licence, Permanent Resident Card
Proof of residency – Permanent Resident Card, utility bill with full name and address
Proof of employment – Letter of employment, T4 slip, pay stubs
Proof of income – Pay stubs
Proof of financial standing – Several months’ worth of bank statements
While you may not need all these documents, having them close at hand makes it easier to approve your loan without delay.
Get Pre-Approved For a Loan
Insta Auto Solutions makes it easy to get approved for a loan. Once you have your documents, fill out our online pre-approval form. It only takes a few minutes to complete and does not impact your credit score.
How to Improve Your Chances of Being Approved For a Loan
If you are finding it difficult to qualify for a loan, there are steps you can take to increase your chances of getting approved.
1. Find a Cosigner
Having a friend or relative with a good credit profile to cosign a loan with you will go a long way toward helping you get approved for a loan. Lenders are more likely to approve a loan with a cosigner because if you default on your payments, they can go to the cosigner for repayment instead.
For this reason, it is important to be responsible and only take on a loan if you are sure you can pay for it. Otherwise, your missed monthly payments will affect your cosigner’s credit score and jeopardize their financial health.
2. Offer a Downpayment
If you can offer a downpayment on a car, your lender may view you favourably and approve you for a loan amount with better loan terms. Offering a downpayment also reduces the loan you have to take. This saves you money in the long run by reducing the cost of your interest payments.
What Are the Steps For Driving Away in Your New Car?
1. Prepare your Documents
Ensure you have all the relevant documents close at hand so you can provide them to your lender for reference.
2. Get Pre-Approved For a Loan
Fill out our online pre-approval form. Insta Auto Solutions makes it easy to get pre-approved for a loan, as the form only takes a few minutes to complete! Also, remember that the pre-approval process consists of a soft credit check that does not impact your credit rating.
3. Go Shopping!
Once you get pre-approved for your loan, you can start shopping for your car. What type of vehicle are you looking for? Do you need a compact car to get to school or work or a minivan to transport your family? It’s important that your vehicle truly serves all your needs, so be practical.
Use our car loan calculator to find out which vehicle you can afford. You can then browse our online inventory to find your perfect car! If you live in the area, drop by the dealership and book a test drive to get a feel for the car you have your eye on.
Also keep the following costs in mind when buying a vehicle:
- Vehicle insurance costs
- Cost of gasoline
- Maintenance and repair costs
Wherever you decide to shop, it’s beneficial to choose a car dealership that works with several lenders. This way, you can shop around to secure the best rate.
4. Get Approved For a Car
Once you’ve selected your car, you can get formal approval for your loan on the same day! That means you can drive it straight out of the lot.
Financing Options For a New Car in Canada
If you want to buy a new car, we have everything you need to make your dreams a reality. At Insta Auto Solutions, we pride ourselves on helping newcomers to Canada and people with no credit or a low credit score purchase a car. Take advantage of our:
- Large vehicle inventory
- Quality used vehicles
- Great pricing
- Experienced staff and finance experts
- Home delivery service
- Full service and repair facility
Come and visit our Alberta car dealerships or contact us to find out more.
