Car loan interest rates

Know what to expect and how to find the best deal.

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One of the most important factors affecting how much you pay for a financed car is the interest rate on the loan. You need to be in a strong place financially to qualify for the most competitive interest rates. And that’s not the only factor to consider when shopping around for the best deal.

Compare rates on top car loans

Name Product Min. Loan Amount Interest Rate Fees Loan Term Min. Credit Score
$500
26.99% - 39.99%. Varies by loan type and province
None
6 months - 5 years
N/A
Fairstone offers unsecured personal loans up to $20,000
$2,000
43% (British Columbia and Ontario) and 34.9% (Quebec)
None
1-5 years
N/A
LendingMate offers loans to Canadians with poor credit with no credit checks. Guarantor required for application.
$2,000
18.9% - 54.9%
None
1- 5 years
N/A
Ferratum provides Canadians in need of quick cash with loans for car purchases from $2,000 to $10,000 for 1 year to 5 years.
$500
4.6% to 46.96%
Varies by lender, loan type and province
1-5 years
420
Get access to 25+ lenders through Loan Connect's brokerage, and receive pre-approval in as fast as 5 minutes, and financing up to $50,000 in as little as 24 hours from the time of your application.

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What is the average interest rate for a car loan?

The average buyer can expect to pay anywhere between 4.5-6% interest on their car loan, depending on whether the car is new or used and whether the interest rate is fixed or variable.

One crucial factor affecting the interest rate is your credit score. The following table shows an example of the amount of interest you could end up paying for a brand new $36,000 car assuming a loan term of 7-years and a down payment of $3,600.

Note: the information below is just an example and does not take into account all of the factors lenders consider when evaluating a loan application. Actual lenders may charge different interest rates.

Credit ratingCredit ScoreInterest Rate
(hypothetical)
Monthly interest
payment
Interest paid over
the entire term
of the loan
Excellent780-9003.49%$498.18$4,767.19
Very good720-7793.99%$506.67$5,480.17
Good680-7194.5%$515.42$6,215.11
Average620-6795.5%$532.84$7,678.66
Poor580-61910%$615.57$14,628.04
Very poor500-57915%$715.52$23,023.99
TerribleLess than 500(unlikely to be
approved for
a car loan)
————

Where can I find a car loan with a competitive interest rate?

Comparing rates offered by different banks, credit unions and online lenders is critical to finding the deal that’s best for you.

  • Banks or credit unions. Since you have an established relationship with your bank already, it might be easier to get approval for a loan, even if you don’t have the best credit. These lenders tend to offer the most competitive rates.
  • Online lenders. Some online lenders may be willing to loan money to people with average or poor credit, even if they can’t get approval from their bank — though they may not get the lowest rate available.
  • Dealerships. Local car dealers are often willing to work within a range of different credit ratings including ones that are below average. But because many dealerships offer financing through an external lender, dealers may inflate interest rates in order to make a profit.

8 tips to get the best rate on your car loan

Finding the best interest rate on your car loan involves doing plenty of research beforehand, which can potentially save you thousands of dollars. The following tips should get you started towards scoring a low rate on your next car loan.

How do lenders come up with my rate?

Lenders don’t just rely on your credit score when they decide your interest rate. The more well-rounded your application, the better your chances of scoring a low rate. Although there are many factors that may play a role in your interest rate, these are the four main points lenders consider when reviewing your application:

  • Credit score. Those with higher scores generally have access to lower rates, so improving your credit history is an important part of getting a low rate on your car loan.
  • Income. Lenders consider your income because it reflects your ability to pay back the loan. They also want to see a low debt-to-income ratio to make sure you can afford your loan.
  • Loan term. The loan term impacts your interest. The longer your loan term, the more interest you pay. Short-term loans are available and they can feature lower interest rates, but your monthly payments will be higher because you have less time to repay the loan amount.
  • Vehicle. Your vehicle’s make and model also play a role in your interest rate, especially if you’re buying a used car. Since it’s likely that your car will be used as collateral for the loan, lenders often charge higher interest for cars that are likely to break down.

Bottom line

At the end of the day, you can lower the total price you pay for a new or used vehicle by ensuring that you’ve found a good deal on your car loan interest rate. When shopping for a new car loan, don’t forget to do your research on each part of the process. If you already have a car loan with a high interest rate and think you could qualify for a lower one, you may want to consider auto refinancing.

Frequently asked questions

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