Car loans in Canada: Auto financing for new and used vehicles

Want to save money on your next vehicle? Spend some time shopping around for the right lender and car loan, and you could save thousands on your next vehicle purchase.

To help, we’ve created this guide to find a lender, assess requirements and compare rates. Or find out how much you can afford using our car loan calculator before short-listing the ideal lender and the right loan options for your needs.

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What is financing a car?

When you finance a car, you’re spreading out the cost of the vehicle over many years, so you don’t have to pay so much upfront.

The downside to a car loan is that you’re adding an ongoing expense to your budget, and since the loan will charge interest, you’ll end up paying more overall. Missing car loan payments could also lead to the vehicle getting repossessed (legally taken away from you by the lender).

How to find the right car loan

The key to finding the right car loan for you is to know your budget, compare features and costs, and shop around. To help, check out the Finder: Best Car Loans in Canada guide where we list the best auto financing options based on the type of loan and lender over top categories.

If you’d rather do your own research, use the Finder car loan comparison tool — where clicking the “Compare” checkbox lets you view up to four lenders’ car loan options side by side so you can easily compare features and requirements.

What is a good interest rate on a car loan in Canada?

A good car loan interest rate is the lowest rate you can negotiate for a car loan. That said, it can be hard to determine whether an offered car loan rate is good, or not. One good method of making this assessment is to compare the car loan rate to the average interest rate for car financing in Canada. Using the average car loan interest rate lets you benchmark loan rates offered by various lenders — and determine if a lender is offering a good rate or not.

At this point in time, the average interest rate for car financing in Canada is 7.65% — which means most Canadians pay between $400 and $900 per month on a car payment — more if they finance a SUV or truck.

Keep in mind, the car loan interest rate you are offered depends on a number of factors, like your credit score, the cost of your vehicle, how much you want to borrow and for how long, among other details.

If you have a good or excellent credit score, you may be able to score an interest rate lower than the national average – anywhere between 0% - 7.5% depending on the make and model, while used car loan rates could range around 8% - 10%. If you have a poor credit score, your car loan rates will probably be higher.

To keep your costs low, you want to find car financing with the lowest car loan interest rate and terms that meet your needs. Generally, the lower the interest rate and the shorter the loan term, the more money you’ll save.

Is 0% financing available in Canada?

While you may come across offers from car dealerships or some online lenders promising 0% financing, remember that most zero-financing deals are difficult to qualify for unless you are considered an exceptional borrower. In order to qualify for low-financing offers, customers typically need to have exceptional credit scores, purchase specific vehicles or provide a large down payment.

If you’re interested in finding lenders currently offering zero percent financing in Canada or want to know who is providing low-interest rates for car loans or cheap car financing, check out the Finder’s guide on 0% financing for cars in Canada.

Car loan payment calculator

To help determine a reasonable financing amount, consider using a car loan calculator to get a better idea of the costs you’ll be adding to your monthly budget. The total car loan amount you need to borrow is based on a few factors:

• Cost of the vehicle. The overall asking price of a vehicle directly impacts how much down payment is required and how much you need to borrow.
• Down payment. While car financing may not require a down payment, in many cases you’ll be required to pay between 10% and 20% of the car’s purchase price. This down payment must be paid out-of-pocket, as it signals to the lender that you are serious about buying the car and repaying the loan.
• Your income and debt levels. A general rule of thumb is to spend no more than 10% to 15% of your salary on all car-related expenses. The higher your current debt load, the less you can borrow.
• Tax. Don’t forget to include sales tax on the car’s sticker price. Depending on where you live, car sales tax can typically add an additional 5% to 15% to the cost.

Finder car loan calculator

To use this calculator:

• Insert the price of the car you want to buy into the loan amount plus sales tax and minus your down payment
• Select the number of years you want to amortize the loan — a fancy way of saying: spread out the payments required to pay off the loan. The longer the amortization, the lower the monthly payment but, the more interest you pay.
• Add an interest rate. If you don’t know what rate you qualify for, you can use the current average car loan interest of 7.65%

Remember to examine your current budget and expenses before agreeing to any car purchase or loan contract — you don’t want to take on a loan that’s too big, or you may end up paying too much or losing your vehicle.

Important car financing terms

To accurately compare loans, you first need to understand the terms and conditions included in car loan contracts. In general, there are three numbers you need to pay attention to when reviewing a car loan:

Principal

This is the total car loan you need to borrow in order to finance a new car. While the easiest way to determine the principal is to look at the cost of the vehicle, keep in mind that the total car financing you will require needs to include the cost of the vehicle, as well as taxes, fees and any additional costs. You can reduce your total auto loan amount through rebates and a larger down payment.

Loan term

The amount of time you agree to repay your auto loan. The loan term can be expressed in years or months. Typical car loan terms range from one to seven years. When deciding on the best loan term, remember that the longer the loan term, the lower your monthly payments but, the more interest you pay. Your best option is to choose a repayment plan that you can stick to with the goal of getting out of debt as quickly as possible.

Fees

Additional fees can add up and, if you’re not careful, significantly inflate the overall cost of your vehicle purchase. For example, you may be required to pay a surtax if you bought an import through a dealership. The dealership may add another cost to the overall purchase price because you upgraded from cloth to leather seats. Then you may be required to pay legal or appraisal fees when opening a car loan, or a discharge fee when you make your final payment.

Interest Rate

The interest rate is what a car loan lender will charge you to borrow money. Expressed as a percentage, the interest rate is the cost of borrowing and is added to the amount you owe. For instance, if you took out a $10,000 car loan in January, at an interest rate of 6.15%, with a 60-month loan term then your monthly payment would be just under $195. At the end of the 60 months, you will have repaid the $10,000 car loan and paid the lender an additional $1,620 in interest payments.

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Where Canadians plan to buy their new vehicle

In the recent Finder: Consumer Sentiment Survey Q2 survey, where 1,011 Canadians were asked where they planned to buy their next vehicle, the majority of Canadians confirmed that a used or new car dealership was still the preferred place to purchase their next vehicle. However, a larger number of Canadians are becoming more comfortable with the online car-buying process.

How many Canadians plan to get a car loan in 2023

Despite higher interest rates and a rise in the cost of living, 15% of Canadians are planning to take out a car loan in the second quarter of 2023. However, the need to use a car loan to purchase a vehicle differs from region to region in Canada.

Where to find car financing in Canada

If you plan to buy a vehicle in 2023 and need auto financing, you’re in luck. Gone are the days when financing was only available through dealers or banks. These days, you can buy a car from a dealership, after-market car lot, through a private sale, online car resellers and even a businesses transportation firm, such as a car rental business — and there are also plenty of ways to secure auto financing. To help you narrow down your options, here are the four types of lenders to consider for your next car loan.

1. Car loans from Canadian banks

Virtually all the major banks in Canada offer auto financing, typically at competitive rates. Keep in mind, that these lenders are more traditional, which means they tend to save the best interest rates and loan terms for customers with excellent credit scores.

A good place to start is with the bank where you currently hold accounts. For instance, a Scotia client should ask about Scotiabank’s auto loan rates, while CIBC customers can ask about current CIBC car loan rates.

If you have a poor credit score consider looking into the Scotia Dealer Advantage. This Scotiabank auto loan program offers car loans across Canada to people with no credit history or less than perfect credit scores.

Bank	Eligible vehicles	Loan features
TD Car Loans	New and used vehicles Cars, trucks, SUVs RVs Powersports Boats	Loan terms up to 96 months Fixed or variable rates
Scotiabank Car Loan	New or used vehicles up to 7 years old (or up to 10 years old if using Scotia Dealer Advantage) Cars, trucks, SUVs	Loan amounts up to $200,000 Loan terms up to 96 months Fixed or variable rates
CIBC Car Loan	New and used vehicles up to 10 years old Cars, trucks, SUVs	Loan amounts up to $100,000 Loan terms up to 96 months Fixed rates
RBC Auto Loan	New and used vehicles up to 10 years old Cars, trucks, SUVs RVs Boats	Loan terms up to 96 months
BMO Car Loan	New and used vehicles Cars, trucks, SUVs	Loan terms between 36 to 96 months Minimum loan amount of $7,500 Option to skip a monthly payment up to 2x per year No early repayment fees

Another advantage when working with a bank lender is that you can use other assets you own to help secure lower car financing interest rates. For instance, homeowners can use their home equity to purchase a car, typically at a lower interest rate. To find out more about this and other assets you can use to secure a personal loan to buy a vehicle, talk to a bank representative.

2. Online car loan lenders

Unlike banks, online car financing lenders are more willing to work with people with bad credit, no credit or a history of bankruptcy. Online lenders are also good whether you need a used car loan, are considering a car lease buy-out, are refinancing or looking for an auto loan for a new car purchase.

Online car loan providers specialize in fast and efficient loan approvals through online or over-the-phone applications. In most cases, you simply fill out an online application form, including your contact details, and the lender will contact you to discuss the next steps.

Types of online car financing lenders:

• Direct lenders. Lenders directly finance the vehicle you want to buy from dealerships or possibly private sales.
  • Example: Splash Auto Finance
• Car loan brokers. Brokers connect you with dealerships, finance companies or car resellers they’ve partnered with that best suit your client profile.
  • Examples: CarsFast, Loans Canada, Carloans411 and Canada Auto Finance
• Online dealers. These platforms offer their own inventory of vehicles, auto financing and vehicle delivery so you can complete the entire car buying process online.
  • Example: Clutch

Car loan comparison tool

3. Credit union car financing

In Canada, credit unions are not-for-profit financial cooperatives whose members can borrow from pooled deposits at low-interest rates. They operate much like banks, offering accounts, investments and loans; however, to get access to these products you often need to become a member.

Some credit unions only allow membership if you are part of a specific organization or union, such as the American Airlines Credit Union. Others require a nominal share purchase to become a member — usually just $5 or $10 to purchase one share within the cooperative.

4. Dealership car financing

If you plan to purchase a car from a dealership be sure to inquire about getting dealership financing. Going through a dealership can make your car buying and auto financing process easier, but be sure to comparison shop to make sure you are getting the best rates and terms.

Most popular car brands in Canada, like Toyota, Hyundai, Ford and Honda, routinely offer special financing on select models, which can help you save money on your car loan. It’s still important to be mindful of potential upsells and markups — sales strategies dealerships use to increase the overall purchase price.

What credit score is required for a car loan in Canada?

While it depends on the lender, it’s possible to get a car loan in Canada with any credit score.

Credit scores can range between 300 and 900. Anyone with a credit score of 650 and higher is categorized as having good to excellent credit, which indicates to lenders that you pay your bills on time and manage your debts responsibly. People in this category are often eligible for a loan from a bank or standalone lender, at a much more competitive interest rate.

People with credit scores between 600 to 649 have a “fair” credit score, while anyone with a credit score of 599 and below is considered to have a “poor” credit score. People with poor or fair credit scores usually end up with interest rates that are higher with lower loan amounts.

To appreciate how your credit score can affect your car loan interest rate, and the overall cost of your new vehicle, consider the following. Suppose you want to purchase a $15,000 car with a $2,000 down payment.

Note: The interest rates listed above are examples and do not consider all factors lenders consider when evaluating a loan application.

Where to get a car loan with bad credit in Canada?

While having a bad credit score (scores between 300 and 600) will limit your options, there are plenty of lenders who will still work with you and help you get a car loan. Just don’t be a surprised if the loan amount you qualify for is smaller than you wanted and with higher interest rates.

Car dealerships and online car loan lenders offer bad credit car loans for consumers who are dealing with bankruptcy, bad credit, or no credit at all. With bankruptcy, the process of getting a car loan may take a bit more time because your lender may need more information from your trustee.

What do you need to apply for a car loan in Canada?

Most lenders will ask to see at least three documents when you apply for a car loan:

• Your driver’s licence. Your lender might ask to see your licence or require your licence number. Either way, have it on hand.
• Your insurance card. Some lenders require you to have specific car insurance before applying for car financing.
• Employment verification. You might be asked to submit tax returns, bank statements or recent pay stubs to prove you make enough to afford your car financing.
• Government-issued ID. You’ll need to show ID, like your driver’s licence or passport, to verify your identity.
• Bank account information. Supply direct deposit information to pay for your car or arrange to make your monthly repayments.

Basic eligibility criteria to qualify for car loans in Canada:

• Be at least the the age of majority in your province or territory (18 or 19 years old)
• Be a Canadian citizen or a permanent resident with a valid Canadian address
• Be employed and have a steady income
• Meet credit score and income requirements set out by your lender

Answer these 6 questions to find the right car loan for you

(Click on each question to learn why this factor is important for getting a car loan.)

• 1. Am I eligible for an auto loan?

  There’s no point in applying for a loan if you don’t meet the lender’s minimum eligibility requirements. You can find these requirements on the lender’s website or in online reviews. The basic eligibility requirements include being a Canadian resident with a valid address, government-issued ID and bank account. After that, lenders focus on your credit score, your job title, your income and how long you’ve been receiving this cash flow into your account.

• 2. Will the lender give me the amount I need to borrow?

  Does the lender offer loans that cover the total cost of a car you’re interested in — and can afford this amount? To avoid being rejected for a car loan, you need to have a clear idea of how much you can afford.

  The benefit to doing these calculations is that you’ll know what extras or perks to skip, so you can stick to your realistic budget and increase your chances of being approved for a car loan. Another benefit is you won’t get stuck with a car loan debt you can’t afford. Wind up in this situation and you may have trouble paying back the loan and this could hurt your credit score.

• 3. Are the interest rates for these car loans competitive?

  Always shop around for the best interest rate on a car loan. In general, the lower the interest rate, the cheaper your costs will be to borrow from that lender. Keep in mind, though, that lenders are in the market to attract business and just because a low rate is advertised doesn’t mean you’ll qualify. Always ask for the interest rate and terms, including the APR, in writing — that way you have a record of the offer, and you can compare each loan offer, side-by-side.

• 4. What are the fees associated with each auto loan?

  On top of dealership fees and taxes associated with buying a car, some lenders charge origination fees for taking out a loan. If you’re working with an online broker that connects you with local lenders who have pre-qualified you, using the brokerage may not come with any fees but your lender may have its fair share of charges. Before you agree to work with any lender, double-check their list of fees and charges. You could be agreeing to hefty charges for changing your loan terms or making a late payment.

• 5. What loan terms am I being offered with each car loan?

  Does your lender offer terms you can afford after you factor in APR and other costs involved in getting a new car? Your goal here is to agree to loan terms that you can stick to so you aren’t struggling to fit your monthly repayment into your budget. Some loan terms can extend to as long as eight years up to a decade. Also, focus on a length of time — the loan term — terms that helps you. The idea is to keep your monthly payments manageable and pay off the debt as soon as possible. The longer you carry debt the more expensive it is, for you.

• 6. What is the reputation of this bank or car financing lender?

  Quickly scan online forums and review sites and talk to family and friends to see what people say about each lender. Are interest rates high? Do people have trouble making repayments? Is there poor customer service? If anything sounds sneaky, run.

4 red flags when looking for car financing

Watch out for red flags when comparison shopping for car loans from various lenders. Be wary of any car loan provider that advertises or offers the following “perks.” Remember, if the offer looks too good, it could be too good to be true — and time to do more research.

• There’s no credit check. Dealerships often don’t run a credit check for buy-here-pay-here loans, but other types of loans usually require a credit check. Direct car loan lenders advertising no credit check could be a scam.
• You can take your car home before final loan approval. This could be the sign of a “spot delivery scam,” where a dealer offering auto loans calls a few days later to announce that financing fell through and you now need to renegotiate your loan at a much higher price.
• The lender lies about your credit score. Some dealers and car loan lenders attempt to convince borrowers they only qualify for car loans with higher interest rates due to too much debt, not enough income or a lower credit score. To avoid this situation, check your credit report before you go car loan shopping and ask the lender what credit ratios they work with when qualifying car loans.
• The lender offers 0% car financing. No-fee car loans are appealing, but typically only reserved for borrowers with exceptional credit scores, a large down payment and very little debt. Another problem with zero percent car financing is that you may be limited in what you can negotiate. The loan term may be shorter and down payment requirements may be high. Ask for details before agreeing to 0% car financing.

Common car loan scams

Survey Methodology

The results of the Finder: Consumer Sentiment Survey Q2 were collected through an online Pollfish survey conducted between April 27 and April 29, 2023. In the survey, 1,011 Canadians from across the country were asked about their opinions and plans regarding the purchase of a vehicle and the use of vehicle financing. The estimated margin of error for the survey is +/- 3%, 19 out of 20 times.

Bottom line

Finding the right car loan for your financial situation and lifestyle can save you a lot of money in the long run. To get the best car loan in Canada, you’ll need to compare what each lender offers, including the interest rate charged on the car loan, the total loan term, the features and perks offered, as well as all taxes, costs and fees associated with the vehicle purchase.

If you’re still not ready to make a decision, don’t worry. You can learn more about how car loans work using our comprehensive How to Buy a Car Guide, check out the car affordability guide or determine whether it’s better to lease or buy a car.

Frequently asked questions about car loans

• How easy is it to get a car loan?

  How easy it is to get approved for a car loan depends on several factors. These include your creditworthiness, your income and how much you can afford to pay for a down payment. If you have strong credit and enough disposable income to afford a down payment plus monthly repayments, getting approved isn’t difficult.

  The state of the economy can affect how easy it is to get a car loan. If the economy is doing poorly and you work in an industry that’s experiencing a lot of layoffs, lenders might be more cautious about giving you a car loan. On the flip side, if the economy is doing well, lenders are typically less concerned about you losing your job and could be more willing to approve you with favourable rates.

• What's a good APR for buying a used car?

  Buying a used car using an auto loan works the same as buying a new car. Calculate the APR by adding the interest rate charged, along with any taxes, costs and fees associated with the vehicle purchase. Remember, the APR you qualify for will depend on your personal credit score, the cost of the vehicle, your debt levels and your down payment.

  If you have excellent credit, expect a good used car loan APR that falls between 0.99% and 4%. If you have poor credit, then the cost of your used car loan will increase. Borrowers with fair or poor credit shouldn’t be surprised to see APRs around 10% to 12%, or higher. To minimize costs, be sure to comparison shop and check out all lender options.

• Are car loans secured loans?

  Generally, yes. Most car loans are secured with the value of your car, which can be repossessed if you stop making repayments. In fact, you typically don’t own your car’s title until you’ve paid off your loan entirely.

• Do I have to be a Canadian citizen to apply for a loan?

  Usually, you will need to be a Canadian citizen or a permanent resident. However, landed immigrants can sometimes be approved for car loans. Having a valid Canadian address will likely be the most important factor.

• Can I refinance my auto loan?

  Yes. Refinancing can offer you a better rate and lower repayments and is an option available from many lenders.

• Do I need a down payment for car loans?

  This depends on the lender. Check the requirements of the loan before you apply.

• Should I lease my car instead of buying it?

  Leasing a car can be an option to consider if you’re looking for a newer model car every two or so years – just remember you will never have ownership of this vehicle. Repayments will generally be lower on lease agreements but they are harder to get out of than just selling a car under finance, so you need to be sure you’ll want the car for the next two years. Learn more with our buying vs leasing a car guide here.

• What credit score do I need to get 0% financing?

  Typically, 0% financing is only available to borrowers with excellent credit scores – between 800 and 900. Dealers typically also consider aspects of your personal finances like your income and debt-to-income ratio when deciding your interest rate.

• Will shopping for a car loan affect my credit score?

  Credit scoring systems usually count multiple auto loan inquiries within a certain time frame – typically two weeks – as one. One inquiry may cause a small, temporary drop in your credit score. But it’s better than multiple inquiries.

• I have bad credit. Do I need a cosigner to take out an auto loan?

  Not necessarily. Some providers specialize in bad credit car loans, though these typically come with rates in the double digits. You may also qualify for a car loan without a cosigner if other aspects of your application are strong, such as having a consistent income or a large down payment saved up.