Illustrations by Wenting Li
Let’s talk about borrowing. Whether to buy a car or finance your education, odds are, you’ll soon have to ask a Canadian bank or other lender for money.
But it’s hard to pick from seemingly endless choices when so many of them are unfamiliar, and you’ll find an astonishing array of financial products and lenders out there.
In this newsletter, I’ll share some pointers to help you choose. I’ll look at vehicle financing and leasing as well as so-called “career loans” and options to help you pay for any schooling and training you might need to jumpstart your career in Canada. We’ll also talk about halal financing. And at the bottom, as usual, you’ll find a real-life tip. This is one about learning to enjoy (yes, enjoy) Canadian winters.
This is the third issue of the Newcomers’ Guide to Finances in Canada course. Not subscribed yet? You can sign up here.
How to finance or lease a car
Owning a vehicle in Canada will make it a lot easier to get around, unless you live in a city with good public transportation. If you can’t buy a car with cash, you can finance or lease one.
How to get a car loan
A car loan typically uses the vehicle you purchased – it can be new or used – as collateral. You can also use a personal line of credit or unsecured loan to buy a car.
You can generally get a vehicle loan at car dealerships, through a bank or credit union or through online platforms that offer car financing.
- Dealerships. They usually arrange loans provided by banks or credit unions, through car manufacturers’ financing divisions or independent lenders. They may even have their own financing arms. While signing up for a loan at the dealer is convenient there are potential drawbacks. Dealers typically receive a fee for arranging the financing, with higher-interest loans often commanding higher fees. They don’t have an obligation to offer you the lowest available rate, although you can ask them to show you multiple loan offers, if applicable.
- Banks and credit unions. You may be able to obtain a better rate by negotiating directly with your financial institution, especially if you have a strong relationship with them. Also worth noting: big banks such as Scotiabank, TD and RBC have newcomer car loans that may allow you to get a vehicle loan even without a Canadian credit history. Those loans typically require a 10-15 per cent minimum down payment and are only available for newer vehicles. Banks will also want to see proof of employment or income.
- Online platforms. There are also several websites that will let you apply to multiple lenders to get pre-approved for a car loan. Some match you with a nearby dealership that will show you purchase options for the loan amount you’re pre-approved for. Digital platforms can be a fast and easy way to compare multiple pre-approval offers, but some of them peddle high interest loans and may target you with ads promoting other high-interest financial products once they have your contact information.
More things to know about car loans:
- If you’re going the offline route, compare loan offers from several dealers and check what you can get directly from your financial institution. That said, never sign a contract with more than one dealer.
- Haggling isn’t common in Canada, but car buying is the exception: Negotiating is a must.
- Canadian lenders routinely offer car loans as long as eight years. Beware of the risks of these longer-term loans.
Car loans vs. leases
Instead of borrowing to own a car outright you can borrow to drive it around for a period of time, usually between two and four years. That’s a lease. It allows you to borrow only the difference between the value of the car brand new and what the leasing company estimates it will be worth when you return it at the end of the lease.
Here’s a good overview of the pros and cons of leasing.
Also, the Automobile Protection Association, a consumer rights group, has a financing calculator and a lease calculator to help you compare the two options.
Rent-to-own
This is a third and little-known option to get yourself behind the wheel of a car. These plans tend to be pricey, and you might be better off buying a cheap used car with cash instead. Still, rent-to-own is an option if you urgently need a vehicle, have little cash on hand and don’t have a credit history.
How to pay for school, training and accreditation
Canada is a land of opportunity. But often even highly educated immigrants find it takes some additional time in school to be able to access that opportunity. Whether it’s a short course to familiarize yourself with the local professional lingo and conventions, exams to achieve the required licensing in your field, or re-training for a career change, you may need to borrow to pay for tuition or so you can pare back your work hours and focus on your studies.
Traditional loans can be hard to get or very expensive if you have no Canadian credit history, but, luckily, there are other options.
Government student assistance
The Canadian government is a rather generous and lenient lender to students in financial need, including many newcomers. Both the federal and provincial governments provide (often combined) funding in the form of grants (which you don’t have to repay) and loans (which you do have to repay) to help cover the cost of post-secondary education.
A few things to know:
- Who’s eligible: Canadian citizens, permanent residents and those with the designation of protected persons. Here are more details. To be eligible, you’ll also need to attend a designated post-secondary institution. The list is long and includes both universities and colleges (which offer more career-focused training) spanning public and private institutions. That said, there are some important exclusions – see the section on career loans below.
- Interest rates: As of April 2023, the federal government has made its funding for student loans interest-free. Beware, however, that funding can also come from provincial governments, some of which continue to charge interest. Also, Quebec, the Northwest Territories and Nunavut run their own student loan programs with separate rules.
- Repayment terms: If you borrow from the government you don’t have to make payments while in school and generally for six-months after graduation. But in some provinces the interest accrues during that grace period.
- Repayment assistance: You may not have to make payments – or be allowed to make reduced payments – if your income is very low after you graduate.
- Tax credits: Most government loans also come with tax perks. For example, you may be able to claim the interest on your student loans on your tax return.
Beyond student grants and loans: From apprentice loans and grants for those going into the skilled trades (think: becoming an electrician or a plumber) to the Canada Training Credit, there are a variety of other federal and provincial government funding opportunities and tax breaks.
Career loans
Despite Canada’s extensive government support for post-secondary education, newcomers sometimes fall through the cracks. For example, professions ranging from doctor through engineer to truck driver require licensing in Canada. That process can be lengthy and costly, and you may struggle to find financial support for it. Similarly, some industry-specific courses aren’t eligible for government grants or loans. That’s where so-called career loans come into play.
You can access these loans through charities such as Windmill Microlending – no credit history required. With government funding, they offer low-cost loans to help skilled immigrants and refugees afford the cost of accreditation and training.
That said, do your research before you borrow to make sure accreditation will actually improve your chance of getting the job you want, says Enoch Omololu of Savvy New Canadians.
Islamic finance
Canada’s Muslim population is projected to triple to three million people by 2030, but newcomers continue to struggle to find loans that conform to Islamic law.
Fortunately, this is starting to change, with the spread of products such as halal mortgages, which do not charge interest. But lenders offering Sharia-compliant options tend to be small and the loans more expensive than mainstream mortgages. (In a halal mortgage usually the bank will buy a home on your behalf and then sell it to you at a profit, a structure that avoids interest charges but still involves costs for the homebuyer).
A lack of widely accepted standards for what constitutes Sharia-compliant mortgages also means you should do your own due diligence. “You have to make sure that what you’re getting is truly halal because you’ll be paying a premium for it,” Walid Hejazi, a professor at the University of Toronto and Islamic finance expert, told me.
Unfortunately, you’ll also find that there are virtually no halal car and education loans out there, Prof. Hejazi added. A rent-to-own plan is “in principle” a Sharia-compliant way of financing a car, he added, but beware of penalties for missing payments. Those charges are generally not permitted under Islamic law, he added.
🍁 SURVIVE AND THRIVE TIP
Here’s my hot take on Canada’s frigid temperatures: Winter is for enjoying the great outdoors. Of course, the cold season is also for reading cocooned in a warm blanket by the window. But, let me tell you, the harsh weather lasts so long that staying cozy will get old.
I wish I’d realized sooner that there’s lots to do outside in winter. Toronto, for example, is dotted with free neighbourhood skating rinks. In fact, there are entire skating trails throughout Canada. There’s world-class skiing and snowboarding, but the slopes are also for sledding, tobogganing and tubing (more fun than it looks, I promise). Snowmobiling and ice fishing are also popular winter pastimes, if you’re interested.
Personally, one of my favourite activities is simply hiking through the quiet magic of snow-covered woods. I have yet to muster the courage to try winter camping, but I’m willing to give it a go (and once my Canadian born and bred husband reads this, there will be no turning back).
Dive deeper with Savvy New Canadians
Run by Enoch Omololu, a money expert and veterinarian who moved to Canada in 2011, the website Savvy New Canadians has become a destination for newcomers seeking personal finance information.
For more on buying a car and free services – including language classes and training – for immigrants:
How To Buy a Used Or New Car For The Lowest Price: Car Buying Tips and Tricks
Buying vs. Leasing a New Car: What’s The Better Option?
Services for New Immigrants in Canada: Get Free Assistance
Keep going with Globe personal finance columnist Rob Carrick
Rob Carrick, the Globe’s personal finance columnist, has helped Canadians make sense of investing, the housing market, retirement planning and every money-related topic under the sun for more than 30 years. He is one of Canada’s best-known and most-trusted sources on anything that might affect your wallet.
You can read Rob’s latest articles here.
Sign up for Rob’s twice-weekly newsletter here.
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