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Subprime auto loans in Canada
Compare subprime car finance lenders and learn about the key factors to consider before applying.
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If you don’t have a good credit score, subprime auto loans are an option for financing a car. There are lenders in Canada who accept borrowers with a less-than-perfect credit history.
What’s a subprime auto loan?
A subprime auto loan is car financing for borrowers with low credit scores between 580 and 669. Since they are offered to riskier borrowers, subprime car loans typically come with higher interest rates. They can be used to purchase a new or used car. Like other auto financing, subprime auto loans are secured by the 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 makes a positive impact on your credit report.
Top picks for subprime auto lenders in Canada
Here’s the rundown on a few subprime lenders that provide auto loans in Canada, including key features, how they work and what you’ll need to apply.
Key features: CarsFast is a subprime lender that specializes in working with low credit score borrowers. You can pre-qualify for loans from multiple lenders with a single application, so you can compare and see what rates are on offer from different providers that are already willing to finance you with a subprime car loan.
How it works: Choose a vehicle from the online app, fill out a simple online application for free in 2 minutes and get pre-approved for various loans that will help you cover the costs of your purchase.
Eligibility requirements: You must be a citizen or resident of Canada who is at least 18 years old and has a steady income of at least $2,000/month.
Key features: Loans Canada has the largest lender network in Canada. This broker lets you compare lenders with one simple application using its innovative online car loans platform. It sends your application to a number of different lenders who will do their best to woo you into a loan agreement. Using this big platform can help you find the best terms and interest rates for your subprime car loan based on your unique set of needs and budget.
How it works: Fill in an online application, which will ask for your personal details, job title and income. From there, you’ll be contacted by a customer service agent to discuss your eligibility, along with rates and terms. You’ll then finalize your subprime auto loan with the lender you choose to work with. There is no cost or obligation after you submit your application, and you can change your choice of car at any time.
Eligibility requirements: You must be a citizen or resident of Canada who is at least 18 years old. You also need to be employed for at least 3 months, with a minimum monthly income of at least $1,800.
Our ‘promoted’ products are presented as a result of a commercial advertising arrangement or to highlight a particular feature. Promoted products are not a recommendation, an indication a product is the best in its category, nor represent all products in the market. It is important to compare your options and find the right product for you.
Benefits of subprime auto loans and what to watch out for
Benefits
Purchase a car. Subprime car loans enable borrowers who would normally be rejected by a major financial institution to buy a car.
Loan terms. Get a loan term of up to 84 to 96 months, but keep in mind the longer the term, the more interest you pay overall.
Loan amounts. Borrow up to $35,000 to $75,000, depending on the lender.
Compare your options. Many subprime lending platforms, such as those in the table and top picks above, allow you to fill out 1 application and get multiple loan offers.
What to watch out for
High interest rates. A subprime borrower has a higher risk of defaulting on their loan, so a lender will charge you a higher interest rate.
Additional fees. Check whether the lender charges any fees, such as an origination fee (fee to process your loan) or prepayment penalties (fee to pay off your loan early).
Risk of default. A high-interest loan is expensive. Before taking out a loan, make sure you can afford the repayments. Your credit score will take a hit if you miss your payments.
What interest rate can I expect as a subprime borrower?
Your interest rate depends on your personal circumstances, but subprime borrowers typically encounter a range of 10% to 20%, sometimes more. The examples below show how much financing a $18,000 car could cost with a subprime auto loan based on a 10% interest rate and a 15% interest rate. This is for illustration purposes only.
Example 1
Example 2
Loan amount
$18,000
$18,000
Interest rate
10%
15%
Loan term
60 months
60 months
Monthly payment
$382.45
$428.22
Total interest paid
$4,946.81
$7,693.12
Credit score
630
585
Can I afford the car loan repayments on a subprime auto loan?
Car loan monthly payment calculator
Calculate how much you could expect to pay each month on a subprime auto loan
Enter the amount you want to borrow to buy a new car under Loan amount. If you plan on putting a down payment on the car, minus that amount from the Loan amount.
Write the amount of time you have to pay off your car loan under Loan terms (in years). If your loan term is in months, divide it by 12 first.
Enter the interest rate you expect to pay on a car loan under Interest rate. If your car loan comes with fees, enter the annual percentage rate (APR) instead.
Click Calculate.
How can I get the best deal on a subprime auto loan?
Subprime auto loans are inherently expensive, but there are a few steps you can take to reduce the overall cost and ensure you’re borrowing from a legit lender.
Step 1: Compare multiple lenders.
The easiest way to get a good deal — or at least avoid a bad one — is to compare lenders. You’ll see what rates you can expect and understand potential fees before setting foot on the car lot, helping you make a better decision. Looking at reviews and complaints of each lender can also provide insight into how they treat their customers.
Step 2: 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 when you borrow less, your monthly payments are more manageable.
Step 3: Keep an eye on fees.
Ask potential lenders about fees. Many will charge origination, prepayment and late fees that quickly add to the total cost of your loan. Use our car loan monthly payment calculator to compare the costs of 2 loans to get an idea of which is offering the better deal.
Step 4: Visit the dealership with a loan in hand.
Visiting the dealership with car loan pre-approval from another lender in hand can put you in a better position when it comes to negotiations. You could get a better rate if the salesperson can match or beat that rate.
Step 5: Apply with a cosigner.
You may be able to score a lower interest rate 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.
Step 6: Save up for a down payment.
A large down payment means you can borrow less, saving you money on monthly interest. The rule of thumb is to have 20% of your car’s value saved up, but even a down payment of 10% can be helpful.
Information and eligibility requirements for subprime auto lenders
While the eligibility requirements for subprime auto loans vary by lender, you generally need to meet the following criteria:
Be 18 or 19 years old
Be a Canadian citizen or a permanent resident
Have a steady source of income (usually at least $1,500-$1,800 is required)
Information you’ll need to provide at some point in the application process includes:
Your name, contact information and address
Your housing situation (rent vs. own and for how long)
Your employment and income details
Valid government-issued ID such as a driver’s licence or a passport
Information about your existing debts
How to apply for subprime auto loans online
Fill out the application. Provide information about yourself and your finances.
Wait for a response. A team member will reach out to you to discuss your application, including interest rates and terms.
Gather supporting documentation. If you like the loan offer, provide documents to verify the information you provided on your application.
Wait for the lender’s decision. Once you’ve submitted your supporting documents, your lender will either notify you of its decision or ask for further information.
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. After reviewing, if you’re comfortable with the terms, sign the contract and return it to your lender.
Are there alternatives to a subprime auto loan?
You have two alternatives to taking out a subprime auto loan, though they 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 much more risk: You could lose 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 subprime 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 8.24%, you could save hundreds or even thousands of dollars by switching from a subprime rate of 10% – 20%.
Is it safe to borrow a subprime auto loan?
It depends on the subprime lender and your financial situation. In general, borrowers of subprime auto loans are more likely to default, which is why lenders charge such high interest rates. But those high rates can make your loan difficult to afford — one or two missed payments could lead to hefty late fees and the risk of having your car repossessed.
Subprime loans are especially risky if you borrow from a buy-here, pay-here dealership because they’re less regulated than other lenders. This doesn’t mean every dealership offering subprime auto loans is shady, but do your homework by researching customer complaints on sites like the Better Business Bureau and Trustpilot. And if you decide to go with dealership financing, pay extra attention to your contract — looking for hidden fees or clauses.
Be on the lookout for subprime lenders that are pushing higher 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 this predatory lending strategy by comparing all of your options and borrowing only the amount you need.
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.
Frequently asked questions about subprime car loans
If you’re unable to repay your car loan, contact your lender immediately to discuss your options. They may be willing to extend your loan term to help make your monthly payments more affordable. Just keep in mind this will increase the total cost of your loan.
There’s no credit score that is too low for a car loan. If you have a credit score of 500 or less, and can’t qualify for certain subprime auto loans, you can still get auto financing through bad credit car loan providers. These lenders put less emphasis on your credit score and more on you having a steady source of income to repay the loan. But keep in mind that, like subprime auto loans, bad credit car loans tend to come with high interest rates. Read our full guide to bad credit car loans to learn more.
Unfortunately, it could. Depending on which province you live in, your credit score could impact your insurance rates, where you could face higher rates due to a poor credit score. The value of your car also plays a role, so be sure to compare insurance quotes in addition to your loan options to find the best deal available to you. Learn more about car insurance in our detailed guide.
Leanne Escobal is a publisher for Finder. She has over 11 years of experience in financial services, specializing in content and marketing. Leanne has completed the Canadian securities course (CSC®) as well as the personal lending and mortgages course by the Canadian Securities Institute. She has a Bachelor of Arts (Honours) in English literature and creative writing from Western University.
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