Compare and apply for a car loan

When you have your eye on a car, it’s easy to consider everything but the financing. However, 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.

Read our guide below to find out how to get the best deal to finance your new car. We cover the different types of car loans available, the costs and some of the most frequently asked questions.

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Name	Product	Min. Loan Amount	Max. Loan Amount	APR	Fees	Loan Term	Min. Credit Score
LendingMate Car Loan		$2,000	$10,000	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.	Go to site More Info	Compare	loading Fetching your data...

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Car loan basics

• 
  Common types
• 
  Costs
• 
  Get a good deal

Types of car loans

What kind of car do you want? Can you afford to buy a new or used car? Do you even want to buy a car – or do you just want to lease one for a few years?

There isn’t just one type of car loan out there for one kind of driver. The financing you need depends on your personal finances as well as what you’re hoping to get out of your loan. Although you’ll find unsecured car loans, most auto financing relies on securing your loan with the vehicle you intend to buy or refinance.

How much do car loans cost?

When it comes to how much you’ll pay for your car loan, it ultimately comes down to three main factors:

• Interest rate. A percentage of your loan balance charged by your bank or lender and added to the principal amount you owe. Interest rates for car loans vary greatly, with rates as low as 0.99% to 12% or higher.
• Fees. Fixed charges added on to the cost of your car loan that you pay back along with the rest of your loan. Your loan’s APR is its annual fees and interest rate expressed as a percentage.
• Loan term. The amount of time your loan contract gives you to pay off your loan. A short loan term generally results in higher monthly payments but a lower total loan cost, since you will pay less in interest. If you can afford to make higher repayments each month you should, in order to save money. APR is critical in calculating how much you’ll pay for your car loan, true. But finding a loan term that isn’t too long or too short also affects your overall costs.

The longer your loan term, the more you’ll pay in interest, which ultimately means your car just got a lot more expensive.

• Down payments, taxes and rebates

  After your APR and loan term, you’ll want to pay attention to how much you’ll have to pay up front and in taxes – and ask about any rebates you might be eligible for. Remember to factor in:

  • Down payment. How much you’re expected to put down initially will affect the immediate cost of your car loan. Expect to pay about 10-20% of the cost of your vehicle up front. Some dealerships have $0 down, however you can usually expect to pay large monthly payments with this type of deal.
  • 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%.
  • Rebates. If you’re financing with a dealer, ask about any cash back discounts to avoid leaving money on the table. Three main types include cash rebates, low-interest dealership financing and special leases. Government rebates for low-emission or hybrid vehicles are also available in most provinces and territories.

• 0% financing

  Some dealerships offer interest-free financing, but they’re not always easy to get and not necessarily the best deals out there. Generally, 0% financing is a marketing tool that manufacturers use to bring in customers.

  You’ll need to meet tough credit and income standards to qualify – only around 10% of applicants actually qualify for the 0% rate. But it might not be worth it even if you do make it past the credit check. These loans tend to be shorter, often no more than 36 months, translating into high monthly repayments.

  You also won’t have as much room to negotiate the price and won’t qualify for a cash-back rebate. On top of this, your deal might be cancelled if you miss just one payment. In the end, you could wind up paying just as much, if not more, if you went for a car loan with interest plus higher monthly repayments.

How to find the best car loan

Before you compare lenders, 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.

Applying for a car loan

• 
  Pre-application checklist
• 
  Step-by-step process
• 
  What happens after approval

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.

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 preapproved.

  Go to your lender’s website or physical store and follow the steps to preapproval. 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 preapproval 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 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.

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.

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 downpayment. If you have strong credit and enough disposable income to afford a downpayment 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 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 my loan?

  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.

• 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.

Aliyyah Camp

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Aliyyah Camp is a publisher helping folks compare personal, student, car and business loans. Prior to joining Finder, she ran her own personal finance blog and wrote for numerous finance sites. Aliyyah earned a BA in communication from the University of Pennsylvania. She regularly attends industry conferences to stay in the know about market changes that can affect consumers. When she's not helping people with their personal finances, you can find her at the movies or going for a run outdoors.