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Loans for non-residents in Canada
You likely can't get a personal loan, but you may qualify for a mortgage as a non-resident.
Non-residents are individuals who normally live outside of Canada for part of or the entire year and are not considered a resident of Canada. Recent immigrants, foreign students and Canadians returning to Canada after being away are all types of non-residents. As a non-resident, you may be seeking financing in Canada. Your personal and student loan options are quite limited, but obtaining a mortgage is quite easy. You can learn more about loans for non-residents in Canada in this guide.
Can I get a personal loan as a non-resident?
The simple answer is no. In Canada, one of the most common eligibility requirements for personal loan financing is being either a Canadian citizen or a permanent resident. The reason for this criteria is that non-residents are too risky. They could flee Canada with the personal loan funds making it nearly impossible for the lender to collect them. For this reason, you may struggle to find a lender who is willing to offer personal loans to non-residents in Canada.
Two types of personal loans to consider
If you manage to find a lender willing to work with you, consider the two main types of personal loans below:
1. Secured loan
A secured loan is backed by collateral. Essentially, any asset that has significant value is considered collateral, such as a property, car or investment portfolio. These loans are perceived to be safer in the eyes of lenders because they can seize the collateral if you fail to make payments or default. By offering collateral, you could better your odds of approval.
2. Unsecured loan
An unsecured loan is not backed by collateral. You have lower odds of approval with this type of personal loan. However, you are not risking the loss of your valuable assets.
How can I find the best loan for my needs?
In addition to collateral, there are various other aspects of a personal loan to consider in order to find the best loan for your needs. Below are the other features of a loan to consider:
- Interest rate. The interest rate is arguably the most important factor. The rate you receive is essentially the cost of borrowing. It will be expressed as a fixed or variable rate.
- APR. The annual percentage rate, or APR for short, reflects the interest rate, fees and other charges related to the loan. Generally, the APR is viewed as the true cost of financing.
- Loan term. The loan term is the amount of time, usually in years, that you will be making payments. The shorter the term is, the higher your monthly payments will be but the less interest you’ll pay. The longer the term is, the lower your monthly payments will be but the more interest you’ll pay.
- Monthly payments. The monthly payment should comfortably fit into your budget. This will protect you from missing payments or defaulting.
- Other conditions. There will be other conditions to your loan, such as no early repayment or fees for late payments. Be sure to read the fine print of your agreement to fully understand all of the conditions.
Can I get a student loan as a non-resident?
No, as an international student or non-resident, you cannot apply for a Canadian student loan. Financing for education is offered by the government and by financial institutions in Canada. Non-residents are not eligible for either.
If you are going to school in Canada but don’t meet the eligibility criteria for financing, you will need to apply for landed immigrant status. Having this status will open financial doors for you, including the ability to apply for financing through a bank or online lender. Keep in mind that applying for this status will take time and patience.
Can a non-resident get a mortgage in Canada?
Obtaining a mortgage for non-residents in Canada is possible. Since the house is being used as security for the mortgage and the property is located in Canada, there is much less risk for the lender. The process for residents and non-residents is actually quite similar. The only difference is you may be required to present more documentation to the lender proving your employment and available funds compared to a resident.
If you’re interested in obtaining a mortgage for non-residents in Canada, consider the following:
- You will be required to be in Canada to complete the mortgage application and approval process.
- Normally, lenders allow mortgagees to borrow up to 80% of the property’s value as a resident. For non-residents, the percentage is reduced to 65%. This means you’ll need to make a down payment of at least 35% or find additional financing.
- You will likely be required to provide third-party proof of income, employment status, net worth and credit rating.
- On average, it takes only one week longer to close a mortgage for a non-resident compared to a resident.
What is a balloon loan?
A balloon loan is a form of financing that offers lower monthly payments in exchange for a lump-sum payment due at the end of the loan’s term. The final lump-sum payment is often quite large, potentially thousands of dollars, which can be cumbersome for the borrower.
Balloon loans are sometimes seen in mortgages. If you come across a balloon loan during your search for a mortgage for non-residents, be sure to consider whether you’ll have enough cash on hand to make the balloon payment.
Credit cards for non-residents
If you’re looking to access credit as a non-resident in Canada, a credit card can also be a powerful option. Most of the big banks offer credit cards and other banking packages to non-residents which can assist with building credit and getting started with banking in Canada. Compare cards that are available to non-residents in the table below.
How to get nontraditional credit references
As a non-resident, it can accelerate the application process if you provide additional documentation related to your creditworthiness, such as non-traditional credit references. This is documentation from a third party that shows successful repayment of bills or debt. If possible, obtain non-traditional credit references that go back 12 months or more. Ideal non-traditional credit references include the following:
- Your rent payment history
- History of bill payments for gas, electric, water, cable, cell phone, etc.
- Proof of any insurance payments such as life or car insurance
What happens after I get my loan?
The application process can take some time, even after you’ve provided all the necessary documents. The amount of time it takes for you to receive your funds depends on the lender. Some lenders take as little as one to two business days to approve and disperse funds. Others can take as long as several weeks.
When you receive your funds, it’s time to start making payments. In order to establish good credit and financial habits in Canada, consider these tips:
- Always pay on time and in full. Payment history is one of the most important aspects of personal finances in Canada. By always paying on time and in full, you’ll be building healthy credit. In addition, you will avoid late payment charges from the lender.
- Missed payments. If you realize you have no other choice but to skip a payment, communicate with the lender as soon as you can. Not only will they appreciate the notice, but they will also likely help you explore financial options and devise a repayment solution.
- Create a budget. A budget is a plan for your income and expenses over a certain period, usually a month. Preparing a budget can help you stay on top of your mortgage payments.
- Enroll for automatic payments. Remembering to make your mortgage payments can be a challenge. For this reason, many lenders offer automatic payments. These are exactly what they sound like, payments automatically withdrawn from your bank account. Ensure you have enough funds in your account when your monthly payment is due. Otherwise, you may incur fees for non-sufficient funds (NSF).
Obtaining loans for non-residents in Canada can be challenging depending on the type of loan you are looking for. A mortgage for non-residents in Canada is the least challenging form of financing you can obtain. Next are personal loans, then student loans. If you’re applying for financing in Canada as a non-resident, prepare your documentation ahead of time. This will streamline application processes and make the lender’s job easier and faster.
Frequently asked questions
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