Car loans for newcomers to Canada: Everything you need to know

It’s understandable that newcomers to Canada worry about finances and credit. “They quickly realize that in Canada, your credit score is your financial passport. Without it, you are invisible,” says Noha El Tanahi, manager of settlement and financial literacy at The Immigrant Education Society (TIES) in Calgary, Alta., an agency that supports newcomers with a range of services, from language training and employment programs to mental health resources and childcare.

Anxious to get ahead, you may think that a car loan can help you build your credit score quickly, but then fall prey to punishingly high interest rates and other pitfalls. If you want to build your credit history, there are less stressful and less expensive options like secured credit cards. But for those who absolutely need a car, here’s what to expect.

Can you get a car loan in Canada with no credit history?

Yes, and it's one of the more accessible credit products for newcomers because the vehicle itself acts as collateral. Lenders report your payments to credit bureaus like Equifax and TransUnion®, which can help you build a Canadian credit file from scratch. The tradeoff is higher interest rates, at least until you've established history, so going in informed matters.

What newcomers need to know about getting a car loan in Canada

1. Get financial advice before you start car shopping

Talking to an unbiased credit counsellor or someone at a community-based settlement agency like TIES can help you understand the Canadian credit system, consider your money needs, and get advice on dealing with car dealerships and lending companies.

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“We need to encourage newcomers to seek professional, non-profit guidance the moment they land,” says El Tanahi, who warns people against advice from misinformed friends or WhatsApp groups. “Financial literacy is a survival skill.”

2. Understand the difference between owning vs. leasing, new vs. used 

Surprisingly, it’s often easier for someone with no or a low credit score to get a loan for a new car, because lenders like higher collateral and bigger loans. In contrast, a used car can vary in value and may need a lot of repairs, potentially impacting your ability to pay it off. Leasing instead of buying a car can result in lower monthly payments, however you won’t own the car at the end of the lease and may have to pay wear-and-tear fees. 

Christine Urbanowski, an accredited financial counsellor and owner of Engineered Growth Financial Coaching in Vernon, B.C., recommends owning because leasing payments never end. “I'm more of a fan of buying, so you keep the car at the end without payments.”

3. Bring a sidekick

Having a fluent and financially responsible person with you while you’re looking at cars or discussing financing terms can save you money and hassle. “Banking terms like ‘amortization’ are hard enough for native speakers, but for someone still learning English, it’s a massive barrier,” says El Tanahi. There can also be a lot of jargon and confusion around things like trade-in value, down payments, warranties, insurance, taxes, fees and more.

4. Never sign a contract on the first day shopping

Urbanowski says everyone can benefit from taking their time, doing a lot of research, shopping around and not getting pushed into a deal. Ask what the total cost of the vehicle will be if you complete an agreement, and also consider your potential gas, maintenance and insurance fees. As she says, “Dealers can manipulate the numbers and lengthen the auto loan to make the monthly payments seem [affordable]—but when you look at the overall cost, is it reasonable?”

Although you may need to sign an application to get a quote and approval, wait to sign an actual vehicle sales agreement until you’ve asked about the lowest interest rates available, read the fine print and compared terms and rates offered by multiple lenders.

“If you take on a car loan and then realize you can't afford it and debt builds up, that’s not going to help you long term,” says Urbanowski. 

What credit score do you need for a car loan as a newcomer to Canada?

Most lenders prefer a “good” score—typically 660 or above—but newcomers with no Canadian credit history can still get approved. Expect interest rates well above 20% from alternative lenders (financial companies outside big banks that approve borrowers with thin credit histories) until you’ve established history. The average credit score in Canada sits around 760, which you can set as your longer-term target.

5. Brace yourself for high interest rates

The average interest rate on a bank or dealership car loan for people with a good credit score is around 6.5% right now, but someone with no credit history might get hit with an interest rate well above 20% from an alternative lender. You may also need to provide proof of income and financial statements, plus make a down payment. (The larger the better if you want lower interest rates.) 

Look at a variety of loan consolidator sites such as loanscanada.ca, myautoapproval.ca and others to get a sense of what’s available, but push back on aggressive sales calls that may follow. If you proceed with a loan that offers refinancing in a year or two, stay on top of deadlines because the lender may not flag them when the time comes.

Other options for newcomers to build their credit score

Whether you ultimately choose to get a car loan or not, know that it’s not the only way to increase your credit score:

A secured credit card from Canadian financial institutions is an accessible option: Provide a security deposit, pay your balance in full every month, and over time, your credit score can grow¹. (You can switch to an unsecured card after showing that you handle credit responsibly.) 

Those with the funds to consistently pay rent on time can also use rent reporting platforms such as FrontLobby and Borrowell, which record payments with credit bureaus. A postpaid cell phone plan also reports positive payment history with minimal risk.

“Most banks now offer newcomer packages that don’t require a Canadian credit history,” says El Tanahi. “Newcomers can see these options in a supportive environment, alongside community experts who can help them understand the fine print.”

Take it slow

Building credit takes time—typically one to three years. Keep making payments on time and check your credit score every six months via Equifax, TransUnion® or your bank. "Give it time," says Urbanowski. "Don't expect to build a credit history super fast.”