If you have dual citizenship or are legally allowed to commute for work to the United States, the car loan rates you might be looking at might be different from your home country. Terms such as taxes, inflation, and climate play a role in how car loans work within North America. For example, many first-time buyers getting their cars in the US find that the interest rate on their loans is higher than what they would get in Calgary, Alberta.
Purchasing a vehicle in Calgary is similar to buying one in the United States. First, you shop around and pick one that meets your needs. Next, you need to apply for an auto loan. To facilitate an auto loan, you must have a lender or a dealership that will require you to make timely payments until you clear the debt. A discrepancy lies in how Canadian and US car lenders handle loans.
In the US, you can expect to pay an interest of 8.12% and 12.08% for a new and used car, respectively, with a non-prime credit score (601 – 660). On the other hand, there is an average interest rate of 7.89% on auto loans in Canada. These are national averages – the specific loan terms depend on many other factors, from the lender’s credit score and prime rates.
Short-term national interest rates in the US are set by the Federal Reserve, while in Canada, they are determined by the Bank of Canada. When the two authoritative bodies adjust the rates, the lenders in both countries will follow suit. The Fed, for instance, holds about eight meetings every year to set a benchmark on the cost of borrowing. The rates decided by the Fed are not the same as what an American auto loan lender will offer you.
When there’s inflation, the Bank of Canada controls the economic disruption by raising the interest rate. A steep rate also causes Canadian auto lenders to increase their prime rates. It usually takes six to eight quarters for such monetary policy actions to be implemented
Alberta doesn’t collect a provincial sales tax, so you only pay 5% Goods and Services Tax if you finance your new vehicle through a dealership and zero tax when you buy from a private seller. In the US, the car sales tax differs from state to state. Oregon, Alaska, New Hampshire, Montana, and Delaware have zero car sales tax rates, while Nevada has the highest (8.25%).
Tax savings on car loans are available in the US, but you must meet certain criteria. Only self-employed residents can claim tax deductions on their auto loan interest, and the vehicle must be used for business. You cannot claim this benefit if you are an employee.
The weather is a common cause of vehicle damage, so it significantly impacts cars’ resale value. Whether it is Calgary or Seattle, cars are exposed to weather elements. Areas with harsh winters have a significant difference in the resale value of vehicles. This is because extreme cold is tough on batteries and engines. Plus, icy roads are more likely to damage the brakes.
Salt is commonly used on roads to melt the ice on roads, but this causes rust on the underbody, eventually eroding the metallic parts. Before purchasing a pre-owned vehicle in Calgary or the US, ask for a vehicle history report to check for previous accidents. And if you are looking for a vehicle with low mileage, it’s vital to check whether it is completely new and not second-hand.
Buying a vehicle in the US may not be as simple as buying one in Calgary. The two countries have different methods of financing and taxation systems. If you are torn between getting an auto loan in Canada and the US, understand the above factors before getting into any deal.
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