Buying a new or used car in Toronto? If you don’t have the cash to pay for it outright, there are plenty of financing options available – even if you have bad credit.
Car loans in Toronto are available through dealerships, banks, credit unions and online lenders. This guide will show you how to qualify for a car loan, how to get the lowest rate and how to find the best loan for your needs.
Compare car loans in Toronto
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What are the interest rates for car loans in Toronto?
As a general guide, Toronto car loans have interest rates of 0% - 7.5% for new cars and 8% - 10% for used cars. According to Statistics Canada, the national average car loan interest rate is 8.24%.
Car loan interest rates in Canada vary depending on the lender you choose, whether you’re buying a new or used car and personal factors such as your credit score and income. If a lender offers car loan pre-approval without it impacting your credit score, you can use this to get a better idea of the interest rate you’ll be able to access.
What are the eligibility requirements?
The exact eligibility requirements differ from one lender to another, but you will typically need to meet the following criteria:
Be at least 18 years old (or the age of majority in your province)
Be a Canadian citizen or permanent resident
Be employed and have a steady source of income
Have a valid bank account
Meet the minimum credit score
During the application process, you’ll need to provide the following:
Proof of ID (such as your driver’s licence)
Proof of income and employment (such as pay stubs and bank statements)
In some cases, you may also need car insurance before applying for a loan
Lenders will consider factors such as your credit score, your income and your repayment history when assessing your loan application. You can get approved for a car loan if you have bad credit, but watch out for high interest rates.
How to get the best car loan in Toronto
Looking for a car loan in Toronto? Here’s how to find financing that’s right for you.
1. Consider your financial situation
Before you start shopping for a car, sit down and work out how much you can afford to pay. Calculate how much you can afford to pay each month, remembering to budget for all your regular expenses plus any unexpected bills.
2. Check your credit score
Before you apply for a loan, check your credit score to find out whether it’s poor, excellent or somewhere in between. This will help you work out which lenders you should consider approaching for a loan, and whether you should take steps to increase your credit score before buying a car.
3. Compare a wide range of loans
Shop around to compare Toronto car loans from a wide range of lenders. Getting car loan pre-approval can help make the comparison process easier. Factors to consider include the following:
APR. The APR incorporates the interest rate and financing fees to show you the true cost of a loan, so it’s a key figure to take into account when comparing loans.
Fixed vs variable rate. A fixed-rate loan offers the security of a set monthly payment and protects you against rate rises, but you’ll miss out on savings if rates drop.
Loan term. Opting for a shorter loan term means your monthly payments will be larger, but the loan will be cheaper to pay off in the long run.
Repayment flexibility. Check how often you’ll need to make repayments and whether you can make additional repayments at any time. If you pay the loan off early, will a prepayment penalty apply?
Trade-ins and down payments. Check whether it’s possible to make a lump-sum down payment towards the purchase price of the car or whether you can trade in your current vehicle to help cover the cost of your new car.
4. Make sure you’re dealing with a legitimate lender
Be wary of scammers and disreputable lenders offering deals that sound too good to be true. Make sure the lender is properly registered in your province, has a legitimate head office and is completely transparent about the cost of your loan.
Your rights as a car buyer in Ontario
It’s essential that you understand your rights as a car buyer under Ontario legislation. For example, if you buy a vehicle from a dealer registered with OMVIC, your purchase is protected by the Motor Vehicle Dealers Compensation Fund. You’re covered to the tune of up to $45,000 if the dealer fails to deliver on the purchase or warranty.
It’s also worth noting that if you’ve paid off at least two-thirds of the total payments required under a car financing agreement, the car can’t be seized or resold by anyone without an order from the Ontario Superior Court of Justice.
Can you get approved for a car loan in Toronto with bad credit?
Yes, you can get a car loan in Toronto with bad credit from the following:
Private lenders. There are many alternative lenders that offer bad credit car loans in Toronto. They focus on assessing your ability to repay the loan, so a regular source of income is a must. You’ll also need to be wary of illegitimate loan providers, so check out our guide to reputable car loan lenders and on identifying common scams.
Dealer financing. Many auto dealerships also offer car loans for bad credit car buyers. Some loans are arranged with the car manufacturer, but others are organized through other lenders and finance companies. However, rather than waiting until you get into a dealership to find out what sort of financing they’ve got to offer, increase your bargaining power by comparing lenders beforehand and getting pre-approval from your top choices.
Consider a cosigner
A strategy worth considering is getting a cosigner for your car loan. This involves asking someone with excellent credit (such as a family member) to cosign your loan. This will allow you to access a lower interest rate and better loan conditions, but your cosigner will become responsible for repaying the money if you default on the loan.
How much will a Toronto car loan cost me?
There are several factors that will affect the cost of your car loan, including the following:
Your credit score. If you have a good or excellent credit score, you’ll be able to access lower rates than borrowers with bad credit.
Your debt-to-income ratio. Lenders will consider any outstanding debts you have relative to your regular income when assessing your loan application. The lower your debt-to-income ratio, the better interest rates you can access.
Rates and fees. Speaking of interest rates, the rate that applies to your Toronto car loan will obviously have a big impact on the total loan cost. But don’t just look at the interest rate – check out the annual percentage rate (APR), which takes into account any fees that apply to reflect the total cost of a loan.
Loan term. Longer loan terms obviously give you extra time to pay back what you offer and can also keep your monthly payment at a more manageable level. However, a longer term means you’ll pay more interest in the long run, and the loan will cost more to repay.
The car you’re buying. The vehicle you purchase will not only affect the loan amount but also the interest rate. Used cars tend to attract higher interest rates than new models.
Cost example: $15,000 car loan over 5 years
To give you an idea of how the interest rate and fees can affect the total cost of a loan, let’s look at the example of a $15,000 car loan with a five-year loan term.
Loan 1
Loan 2
Loan amount
$15,000
$15,000
Loan term
5 years
5 years
APR
5.99%
12.99%
Monthly payment
$290
$341
Total cost
$17,395
$20,473
An APR of 12.99% means a $51 larger monthly payment than an APR of 5.99%. Over the life of the loan, you’ll end up paying an extra $3,078 with the higher rate.
Can you get guaranteed approval on a car loan in Toronto?
No. There are some dealers that claim to offer guaranteed approval, but they actually have conditions attached. Before approving your loan, the lender will need to assess your credit score, your income and your ability to repay the money you borrow. In fact, promising guaranteed approval is a warning sign that you could be dealing with a loan scam, so tread carefully.
Lease-to-own option for people with poor credit
If you’ve got a poor credit score, a dealer might only approve you for a lease-to-own plan.
With a lease-to-own plan, you make payments to lease or “rent” the car for a time. Once you’ve finished the program by making all the on-time payments, you own the car. You’ll need to have a steady source of income to qualify, and it’ll be more expensive than dealer financing or a standard lease. Learn more about lease-to-own programs.
Bottom line
There are plenty of options to choose from if you’re looking for a car loan in Toronto, even if you have bad credit. But rather than just choosing the first loan you find, make sure you compare financing from a wide range of lenders to find the best deal.
Frequently asked questions
Credit score requirements vary between lenders. As a general guide, traditional lenders will require you to have a credit score of 650 or higher. However, if your credit score is lower than this, there are still many alternative lenders that specialize in bad credit car loans in Toronto.
Car loans in Toronto are available through dealerships, banks, credit unions and private (including online) lenders.
The exact amount you can borrow varies depending on the lender, your financial situation and the car you want to buy. Some lenders have a maximum loan amount of $50,000 or $75,000, but others don't specify an upper limit.
Tim Falk is a freelance writer for Finder. Over the course of his 15-year writing career, he has reported on a wide range of personal finance topics. Whether you're investing in stocks and ETFs, comparing savings accounts or choosing a credit card, Tim wants to make it easier for you to understand. When he’s not staring at his computer, you can usually find him exploring the great outdoors.
Who is currently offering zero percent financing on cars in Canada? See offers from popular car brands in Ontario, BC, Alberta and more.
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