Compare car loans

Knowing your options for buying, leasing or even refinancing your dream car can get you out on the road more quickly – and leave you with more money in your pocket.

How does auto financing work?

A car loan is a type of financing used specifically to purchase a new or used car. After buying the car, you’ll make monthly payments of both principal and interest until the loan is fully paid off. Auto loans are usually secured loans — the car itself is used as collateral and can be repossessed if you don’t make payments.

How much you can borrow and what interest rate you get depends on the lender and your personal financial situation. The best way to ensure you’re getting the best deal available to you is to compare offers from multiple lenders before signing on to any car loan.

How much do car loans cost?

When it comes to how much you’ll pay for auto financing, you need to factor in both ongoing costs built into the loan and upfront costs. These are going to include:

Ongoing costs

• Interest rate. The average car loan rate is 4.5% to 6%. The lowest rates hover around 3%, though these are reserved for individuals with excellent credit and a low debt-to-income ratio. Borrowers with poor credit usually see rates in the double digits.
• Fees. Some lenders charge an origination fee of 1% to 5% of the loan amount. Your loan’s APR is interest and fees expressed as a percentage.

In addition to APR, the length of your loan term also affects the overall cost. Your loan term is the amount of time you have to pay off your loan. A short loan term generally results in higher monthly payments, but a lower total loan cost. A longer loan term gives you lower monthly payments, though you’ll ultimately pay more in interest.

Upfront costs

After your APR and term, you’ll want to pay attention to how much you’ll have to pay up front and in taxes:

• Down payment.How much you’re expected to put down affects the immediate cost of your car loan. Expect to pay 10% to 20% of the cost of your vehicle up front.
• Sales tax.Sales tax differs between different provinces and territories, so contact Service Canada to find out more about the tax you should expect to pay. Make sure to factor in sales taxes when estimating the cost of your car, as this can add a hefty amount onto the cost, usually between 13-15%.

What about 0% APR financing?

Some dealerships offer interest-free financing, but it’s not always easy to get. Keep these drawbacks in mind before signing on to 0% APR financing:

• It’s a marketing tool. Generally, interest-free financing is a marketing tool that manufacturers use to bring in customers.
• Not everyone is eligible. You need to meet tough credit and income standards to qualify — only around 10% of applicants actually qualify for the 0% rate.
• Higher monthly payments. These loans tend to be shorter — often no more than 36 months — translating into high monthly payments.
• Less room to negotiate. This type of financing tends to come with a fixed price, and you often can’t qualify for a cashback rebate.
• Your deal might be canceled. You might have to pay full interest if you miss just one payment.

Compare car loans

Where can I get a car loan?

• Banks. Your bank most likely offers auto financing or a personal loan you can use to purchase a new car. It’s a relatively hands-off experience, and only applicants with good credit typically qualify.
• Credit unions. Credit unions often offer financing with lower rates and more lenient credit requirements. But you need to join to qualify, which can add time to the process.
• Online lenders.Online car loan providers can offer faster funding for people with damaged credit or who are new to auto financing. Some can also help you find a car at a dealership.
• Online connection services. Loan connection services could be an ideal option if you have bad credit, since many offer loans with low or no credit requirements — though it won’t be cheap.
• Dealerships. You can always try to get financing directly from the dealership, though you might need to become a master negotiator to dodge typical dealership tactics.

How to find the best car loans

Before you compare lenders for car loans, calculate how much you can afford to pay for a down payment, monthly repayments, any fees and your loan’s overall cost. Look up the taxes and fees associated with purchasing a car in your province or territory, and add them to the cost of each car you consider.

Banks, credit unions and online lenders often ask borrowers to choose a car before applying. Matching services and dealerships, on the other hand, usually ask you to come with an open mind. Regardless of where you apply, narrow down the makes and models of different cars in order to get an idea of the type of car you can afford.

To get the best car loan, ask yourself these 9 questions:

Click on each question to expand more information about what to look for.

• 1. Am I eligible for auto loans?

  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.

• 2. How much can I borrow?

  Does the lender offer loans that cover the total cost of a car you’re interested in, and that you can afford? Don’t be convinced by a dealer that you can upgrade models if you know it’s out of your budget.

• 3. Are the interest rates competitive?

  A high minimum advertised interest rate isn’t the best sign, and a refusal to disclose interest rates can be even worse. It could mean that the rates are so high, the lenders would rather not advertise them.

• 4. What are the fees?

  On top of dealership fees and taxes associated with buying a car, some lenders charge fees for taking out a loan.

• 5. How long are the loan terms?

  Does your lender offer terms you can afford after you factor in APR and other costs involved in getting a new car?

• 6. What’s the down payment?

  A 10% down payment is standard, but some lenders charge more. Go for a lender that offers a down payment that fits your budget.

• 7. Is it cheaper to lease or buy a car?

  For those leaning toward leasing a car, remember that the value of your car decreases over time. There’s a chance that leasing that car will cost more than just buying it if you’re in it for the long term. It’s usually cheaper to buy a car. However, one of the differences between buying and leasing a car is that, as a lessee, you don’t have to worry as much about maintenance and vehicle upkeep.

• 8. How is the lender's online reputation?

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

• 9. What services does it offer?

  Some lenders hold your hand throughout the process of getting financing, and others don’t. Consider the help if you don’t know what you’re doing – but also ask: Is the lender genuinely helpful or just pushing you into spending lots of money?

You’ll find that some of this information isn’t readily available online for loan-matching services and dealerships. In those cases, it’s worth taking a look at reviews, forums or calling a customer service line to get a ballpark answer.

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How do I know if I’m ready to apply?

You’re ready to apply for a car loan if you:

• Know how much you can afford for a down payment and monthly repayments.
• Look into the required taxes and fees in your province or territory.
• Know your credit score.
• Have a few vehicles in mind.
• Have thoroughly compared lenders.
• Are sure you meet your lender’s eligibility requirements – including car insurance.

Use our car loan monthly payment calculator to see how much you can afford

I’m ready to apply. What do I need to do?

The car loan application process can vary wildly depending on the type of financing you choose. Getting financing from a dealership doesn’t involve most of the steps outlined below, for example – instead, you start at the dealership.

• Step 1. Get pre-approved.

  Go to your lender’s website or physical store and follow the steps to pre-approval. This typically involves a soft credit pull and can take anywhere from a few seconds to a few days.

  Depending on what type of lender you’re borrowing from, you might need to have a specific car in mind to qualify. Others will just want to know how much you’re willing to spend, including taxes and fees. Regardless of which choice you choose, go in with a specific number in mind.

• Step 2. Choose your loan.

  Your lender will tell you the type of loan you stand to get once you’re preapproved. Some lenders also guide you toward vehicles you can qualify for at this point. Carefully consider your finances to make sure you can afford your loan before taking the next step.

• Step 3. Submit your documents.

  At this point, your lender might ask to see documents to verify your income, insurance and more. Online lenders typically allow you to upload forms and documents as PDFs.

• Step 4. Read your loan agreement before signing.

  You typically need to sign off on your loan before going to the dealership, but that’s not always the case. Regardless, read the terms and conditions with extra care, and look up anything you don’t understand. Never skim a loan contract – always read it thoroughly.

• Step 5. Compare insurance policies if you don’t have one already.

  You must find insurance before purchasing a car. While your dealership (and some lenders) can offer insurance, you won’t necessarily get the best deal through them.

• Step 6. Go to the dealership.

  See if your lender can set up an appointment for you. Otherwise, go to the dealership and tell the salesperson who you’re financing with. Then, pick out a car you can afford.

• Step 7. Negotiate your final price.

  This step can be the most uncomfortable, but also the most crucial. Negotiation is generally expected at car dealerships – and reflected in prices.

• Step 8. Read the papers carefully.

  Look out for extra unnecessary fees and confusing language. Ask lots of questions, especially if something seems fishy.

• Step 9. Sign the paperwork.

  After paying the dealership, your lender will take care of setting up your loan’s repayment schedule.

• Step 10. Register and get ownership for your vehicle.

  You can register, get ownership and get registration plates for your car at Service Canada, for a fee. You may also be able to do some of these steps at the dealership.

What documents do I need?

Most lenders 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 a loan.
• Employment verification. You might be asked to submit tax returns or recent pay stubs to prove you make enough to afford your car loan.

• 5 reasons your car loan application was rejected

  • Bad credit. The pre-approval process for many lenders is a soft credit check only.
    How to avoid it: Know your credit score and your lender’s credit requirements before applying.
  • Paperwork mistakes. Missing or incorrect information on your application can land you in the rejection pile.
    How to avoid it: Carefully review your application before submitting it. Bonus points if you get someone else to look it over too.
  • A recent financial catastrophe. Foreclosure, tax liens and bankruptcies make you look like a risk to lenders.
    How to avoid it: Wait a year or so before all of that is behind you. Waiting not an option? Try a lender that doesn’t have such strict requirements, though it might cost you in higher repayments.
  • You asked for too much. You can be rejected if your lender doesn’t believe you’re able to repay a loan.
    How to avoid it: Only apply for a car loan you can prove you can afford – not one you think you can.
  • Inconsistent income. Unpredictable cash flow is not assuring to a lender that wants to be sure you can pay back a loan.
    How to avoid it: Freelancers might try to get a steady part-time gig on the books to show you have at least a reliable base income.

  Why was my car loan application rejected?

I got my car loan. What happens next?

So, you’ve finalized the deal that got you behind the driver’s seat. Now it’s time to start paying off your car loan. With many lenders, you can set up automatic payments so you don’t forget to pay. Keep track of your personal account and loan balance to make sure everything goes smoothly.

Before signing your loan contract, find out if you can make early repayments without incurring additional fees by contacting your lender directly.

Loans for other types of vehicles

• RV loans. RVs can cost as little as $10,000 up to $150,000 or more depending on the size and model. Financing for an RV is typically long-term over the course of 12 months up to 10 years. Some RV loans come with a fixed interest rate so your monthly repayments will be the same every month. Other loans have a variable interest rate, which means your repayments may fluctuate, but the rate tends to be lower. Learn more about RV loans.
• ATV loans. ATVs can cost as little as $3,000 up to $18,000 or more depending on the model. ATV loans usually don’t need a down payment. You can finance an ATV through a manufacturer, dealer or lender. Learn more about ATV loans.
• Motorcycle loans. Motorcycles, just like RVs, have a wide price range. You can get a motorcycle for as low as $6,000 up to $50,000 or more. You can finance a motorcycle through a manufacturer, dealer or lender. Learn more about motorcycle loans.
• Truck loans. Depending on whether it’s for commercial or non-commercial use, there are several lenders that offer truck financing. Truck prices can also vary widely. It can be as little as $20,000 and all the way up to over $150,000. Learn more about truck loans.

Frequently asked questions

• 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 lay offs, 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?

  What makes a good APR depends on your personal credit score. If you have excellent credit, a good APR could be 0.99% to 4% on a used car loan. If you have poor credit, the lowest APR you may be eligible for could be around 12%, or much higher. It all depends on your creditworthiness and your options.

• Are auto 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 auto loans?

  This depends on the lender you are applying with. 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.