Subprime Auto Loans in Canada
Compare subprime auto lenders in Canada to finance your next set of wheels—even if you have bad credit.
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Subprime auto loans can give borrowers another way to finance a vehicle when they have low credit scores. The tradeoff is that these loans typically come with higher interest rates, which can increase the overall cost of the car.
Compare your loan options in Canada.
Key takeaways
- A subprime auto loan isn’t your only option. You could consider an unsecured personal loan, which won’t put your car at risk if you default, or a home equity loan, which usually has better rates but puts your home at risk.
- If you can’t keep up with your subprime auto loan payments, contact your lender straight away. They may be able to extend your loan term to lower your payments, but you’ll pay more interest over the course of the loan.
- There’s no credit score too low to apply for a car loan in Canada. If you don’t qualify for a subprime auto loan, a bad credit car loan provider may still approve you based on your income, but you should expect a high interest rate either way.
What are subprime auto loans?
A subprime auto loan is car financing for borrowers with low credit scores below 660. Since subprime auto loans are offered to risky borrowers, the interest rates can be high. Like other auto financing, subprime auto loans are secured by the used or new car you buy.
Subprime car loans can be helpful for borrowers looking to get behind the wheel of a car while simultaneously improving their credit score. It looks good to lenders if you make repayments on time and in full, which positively impacts your credit report.
What are subprime auto loan interest rates in Canada?
Interest rates for subprime auto loans in Canada generally range from 12.9%–29.99%. Here’s how much financing a $25,000 subprime auto loan could cost with a 16% and 26% APR. This is just an example. Your actual rate and total interest cost could vary.
| Example 1 | Example 2 | |
|---|---|---|
| Loan amount | $25,000 | $25,000 |
| APR | 16% | 26% |
| Loan term | 60 months | 60 months |
| Monthly payment | $607.95 | $748.51 |
| Total interest paid | $11,477.09 | $19,910.70 |
Can I afford subprime auto loan payments?
Use this calculator to find out how much your payments might be.
Auto Loan Payment Calculator
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| Payment Frequency | Payment Amount | Total Interest Paid |
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| Monthly | $0.00 | $0.00 |
| Bi-weekly | $0.00 | $0.00 |
| Weekly | $0.00 | $0.00 |
* Calculation results are approximations and for informational purposes only.
How to get the best deal on a subprime auto loan
Subprime auto loans are expensive, but there are a few steps you can take to reduce the overall cost and ensure you’re borrowing from a legit lender.
Compare multiple lenders
The easiest way to get a good deal—or avoid a bad one—is to compare different lenders. You’ll see what rates you can expect and get a clear view of potential fees before setting foot on the car lot, helping you make a better decision. Be sure to check customer reviews and complaints for insight into how lenders treat their customers.
Shop used instead of new
While used car loans tend to have higher rates than new car loans, buying used means you won’t need to borrow as much and will have more manageable monthly payments.
Keep an eye on fees
Ask potential lenders about fees. Many will charge origination (loan set up), prepayment and late fees that quickly add to the total cost of your loan. Use our car loan monthly payment calculator to compare the loan costs to get an idea of which offers a better deal.
Visit the dealership with a loan in hand
Visiting a dealership with car loan pre-approval from another lender can put you in a position to negotiate. You might score a better deal if the salesperson can match or beat your pre-approval offer.
Apply with a cosigner
You might be able to score a lower interest rate by applying with a cosigner. However, since they’re taking on considerable risk if you default, discuss your budget with them and make it clear how you plan to afford the monthly repayments.
Save up for a down payment
A large down payment means you can borrow less and save on interest charges. A good rule of thumb is to save up 20% of your car’s value, but even a 10% down payment can help.
What do I need to apply for a subprime auto loan?
Exact eligibility criteria will vary between subprime auto lenders in Canada, but you generally need to meet the following requirements:
- Be the age of majority in your province or territory (18 or 19)
- Have a Canadian residential address
- Have a steady source of income ($1,500 – $1,800 is recommended)
Information you’ll need to provide at some point in the application process includes:
- Your name, contact information and address
- Your housing situation (do you rent or own your home, and how long have you lived there?)
- Your employment and income details
- Valid government-issued ID such as a driver’s licence or passport
- Information about your current debts
How to get a subprime auto loan online
- Visit the lender’s website. Fill out your lender’s online application with basic personal and financial information.
- Find out if you qualify. A customer service representative will reach out to discuss your application, including possible interest rates and terms.
- Gather supporting documentation. If you want to move forward, provide documents to verify your application details.
- Wait for a decision. Usually, it takes a day to two to find out if you’ve been approved for a subprime auto loan.
- Review and sign the contract. If approved, your lender will send you a loan contract for review. This contract contains vital information including your loan term, repayment schedule and interest rate, so take your time reviewing it. If you’re comfortable, sign and return the contract.
Benefits and drawbacks of subprime auto loans
Benefits
- Purchase a car. Subprime car loans make it possible to buy a car even if you’re normally rejected by major financial institutions.
- Loan terms. Get a loan term of up to 7 or 8 years, but keep in mind that, the longer the term, the more interest you pay overall.
- Loan amounts. Some lenders offer up to $75,000.
- Compare your options. Many subprime lending platforms, such as those in this guide, allow you to compare multiple subprime auto loans with one application.
What to watch out for
- High interest rates. Lenders charge high interest rates on subprime car loans, because there’s a chance that bad credit borrowers will default.
- Additional fees. Check if the lender charges an origination fee to process your loan or a prepayment penalty if you repay your loan early.
- Risk of default. A high-interest loan is expensive, and your credit score will take a hit if you miss payments.
Are there alternatives to subprime auto loans?
yes, there are two alternatives to getting a subprime auto loan, although both can be risky:
- Unsecured personal loan. Unlike an auto loan, you won’t lose your car if you default on an unsecured personal loan. However, it can be more difficult to qualify for a personal loan, and rates are likely higher than a subprime auto loan since it poses more risk to the lender.
- Home equity loan. If you have equity in your home, you could use it to purchase a car. A home equity loan generally has better rates than a subprime auto loan. But it comes with the risk of losing your house if you default.
Should you refinance your subprime auto loan?
Yes, but only if your credit score has increased since you first got your subprime car loan. Refinancing your auto loan once your financial situation has improved can potentially help you lock in better loan terms.
If you qualify for lower rates from a different lender, you’ll decrease the total cost of your loan. Considering that the average car loan interest rate in Canada is 6.66%, you could save hundreds or even thousands of dollars by switching from a subprime rate of 12.9%–29.99%.
Is it safe to borrow a subprime auto loan?
It depends on the subprime lender and your financial situation. The high rates that typically come with subprime auto loans can be tough to pay. Missing payments could lead to hefty late fees or even repossession of your car.
Subprime loans are especially risky if you borrow from a buy-here, pay-here dealership, which are less regulated than other lenders. Not every dealership offering subprime auto loans is shady, but you should still research customer complaints on sites like the Better Business Bureau and Trustpilot. If you go with dealership financing, look for hidden fees or clauses in your contract.
Lookout for subprime lenders pushing large loan amounts and absurdly high rates. It could be a sign the lender is banking on you defaulting and plans to sell your debt for a profit. Protect yourself from predatory lending by comparing all your options, borrowing only what you need and avoiding anyone who pressures you to sign or has unclear terms. Also learn about car loan scams you could encounter.
Bottom line
Subprime auto loans can be beneficial if you have no other options. Comparing lenders and paying close attention to the terms of your contract can ensure you’re not taken for a ride. To learn more about how it all works, check out our guide to car loans.
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