Getting a loan for a luxury car is very similar to getting a regular car loan — but the numbers are bigger. You might have trouble qualifying for a loan of this size unless you have great credit and can prove that you can afford the monthly repayments.
How do luxury car loans work?
A luxury car loan works the same as a regular car loan but you’ll be committing to a larger amount of money — most luxury cars start upwards of $40,000. A loan of this size is a serious undertaking, and you should make sure your budget can handle the monthly payments before you start browsing lenders.
Fortunately, there are plenty of loan options out there. Whether you’re seeking a secured or unsecured loan or a loan with a fixed or variable interest rate, you can find something that suits your needs.
How to finance an exotic car
- Secured car loans. Backing your loan with your car makes it less of a risk to the lender, which makes it easier to qualify for a competitive rate.
- Unsecured car loans. You won’t risk losing your car but you could end up paying higher rates than you would with a secured loan.
- Business car loans. Business car loans come with payments structured around your business’ cash flow, and sometimes don’t even require a deposit.
- Dealer financing. Most dealerships offer a financing option for you when you purchase cars from them, usually with low monthly repayments and a balloon payment at the end.
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Representative example: Sergei buys a BMW
Sergei lives in Ontario and recently got a new job in another city, so he wants to buy a car that he can use for the daily commute. Sergei finds a 2020 BMW 330I XDRIVE Sedan at a dealership for $53,000.00. After putting a 15% down payment of $7,950.00 on the car, he heads to his local bank where he applies for an auto loan to cover the remaining cost.
Because Sergei has a solid credit history, he is approved for loan to cover the outstanding amount plus $5,856.50 HST on the purchase price. Along with the cost of his loan, Sergei also pays approximately $180.00 to register his vehicle with the province of Ontario – this includes the cost of license plates, a sticker and a vehicle permit.
|Cost of new car||$45,050.00 ($53,000.00 less $7,950.00 down payment)|
|Loan type||Auto loan (term loan)|
|Interest rate (APR)||5.90%|
|Loan term||7 years|
|Additional fees||3.00% origination fee ($1,558.20)|
|Payment||$756.28 monthly or $348.68 biweekly|
|Total loan cost||$62,263.32 with monthly payments or $63,459.76 with biweekly payments|
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
The following shows the interest you might pay over various loan terms, assuming that your car costs $55,000, you’re making a $5,000 down payment, and your credit is good. Note: these figures and interest rates are for example purposes only. Actual amounts vary based on your credit score, income, the age of your vehicle, dealer rebates, the trade-in value of your old car and other factors. Ask your lender what rates apply to you. In this scenario, going for a 96 month (8 year) loan might get you a lower interest rate, but you’d also end up paying around $2,000 more in interest fees! If you know luxury, exotic and classic cars well and can realistically commit to making steady payments for a long time (and don’t mind paying more interest fees), then you may be able to handle a long-term loan. Longer loan terms aren’t for everyone. If your financial circumstances change during the lengthy repayment period, you’ll be stuck with an expensive loan that you can’t afford. If you can afford to pay a higher monthly payment over a shorter time period, you should do it to save money in the long run.
What you need to know about long-term loansWhen you’re looking into buying a luxury or exotic car, lengthier loan terms may start to pop up to make the purchase more affordable. The average term for a non-luxury car loan is about 5-6 years, but in Canada you may be able to get a 6-8-year loan to finance a more expensive ride. The interest rates can often fall between 3.99% and 6.99% for a 5-8-year loan, and it takes a knowledgeable buyer to get the most out of it.
Loan Term Interest Rate Monthly
Paid on Loan
60 months (5 years) 4.99% $943.33 $6,599.80 72 months (6 years) 4.79% $800.39 $7,627.68 84 months (7 years) 4.49% $694.78 $8,361.06 96 months (8 years) 3.99% $609.23 $8,486.21
The following shows the interest you might pay over various loan terms, assuming that your car costs $55,000, you’re making a $5,000 down payment, and your credit is good.
Note: these figures and interest rates are for example purposes only. Actual amounts vary based on your credit score, income, the age of your vehicle, dealer rebates, the trade-in value of your old car and other factors. Ask your lender what rates apply to you.
In this scenario, going for a 96 month (8 year) loan might get you a lower interest rate, but you’d also end up paying around $2,000 more in interest fees! If you know luxury, exotic and classic cars well and can realistically commit to making steady payments for a long time (and don’t mind paying more interest fees), then you may be able to handle a long-term loan.
Longer loan terms aren’t for everyone. If your financial circumstances change during the lengthy repayment period, you’ll be stuck with an expensive loan that you can’t afford. If you can afford to pay a higher monthly payment over a shorter time period, you should do it to save money in the long run.
How to compare exotic car financing
Beyond loan term, fees and repayment options, you’ll want to keep an eye out for loans that have these features:
- Fixed or variable rate. Would you prefer a stable monthly payment, or are you willing to take a gamble on a fluctuating interest rate that could be lower down the road? Click here to read more about fixed-rate versus variable-rate loans.
- Secured or unsecured. Do you want to use your new luxury car as collateral to get a lower rate, as would be the case with a secured loan? Or are you okay with paying a little extra to avoid losing your exotic wheels, as would be the case with an unsecured loan? Click here to read more about secured versus unsecured loans.
- Flexibility. Look for a lender that allows you to pay off your loan early without any penalties and that has a really good reputation for providing top-notch customer service.
4 mistakes to avoid
- Small down payments. A hefty down payment helps reduce the cost of the loan and lower your monthly payments. Paying more upfront will save you a lot of interest fees down the road.
- Adding one-time costs into the loan. Some lenders might let you include the taxes and cost of vehicle registration in your loan, but remember — anything added to your loan balance will increase the interest you have to pay.
- Not comparing your options. A luxury car should not be a spur-of-the-moment purchase. Take your time to review your loan options and your financial situation to be sure you can handle the payment schedule.
- Long terms. Unless you’re buying your car as an investment, going for an extra-long term means you’ll pay a lot more in interest.
How to apply
Although all lenders are different, below is a list of some basic information you’ll likely need when applying for a loan.
- Personal information, including your name, Social Security number and proof of identity
- Employment information, including your income, your employer, the length of your employment and Notices of Assessment from the current and previous tax years
- Financial information, including your assets, credits, and debts and liabilities
- Vehicle information, including make, model, condition and price (this can be obtained from your dealership)
- Business information if the car is being purchased by a business
Since you’re borrowing a large amount, your credit score needs to be high with a near-perfect payment history. Lenders are unlikely to extend a loan to someone whose score and history don’t reflect upstanding financial decisions.
Can I qualify?
It depends on your lender but generally you must:
- Have good or excellent credit. If you want an unsecured loan, you’ll likely need to have near-perfect credit to be eligible for a large enough loan to buy a luxury vehicle.
- Have a low debt-to-income ratio (DTI). You generally can’t qualify for a loan with a DTI over 43%, though it’ll likely need to be much lower for a luxury car loan.
- Make enough to afford repayments. Lenders for loans of this size often require you to have an income near, or exceeding, six figures.
Popular luxury cars in Canada (2018)These luxury car brands are known for their speed, power and comfort. Starting at around $55,000, these are some of the vehicles that Canada’s well-to-do drivers love to take out on the road.
- BMW X6 – Price: $71,900-$88,400 (the X6 M model starts at $114,700)
One of the most well-known German car brands, BMW produces luxury cars around the world. Whether you want style, eco-friendly features or handmade design — remember, BMW owns Rolls-Royce — you can find it with BMW. Considered a “sports activity coupe,” the X6 is capable of going from 0-100km/h in 4.2 seconds. It’s also designed to reduce fuel consumption, which is great for city drivers.
- Audi Q7 – Price: $61,900-$74,750
Another renowned German company — Audi is owned by Volkswagen and is among the top sellers of luxury cars around the world. The Q7 is a sporty midsize crossover SUV that comes as either a five – or seven-seater. It offers an array of comfortable features including an electronic assist system to monitor your distance from other cars, a coloured heads-up display and adaptive cruise control.
- Lexus LC Series – Price: $102,100 (Hybrid: $118,600)
Under the luxury division of Toyota, Lexus was once known for stuffy, conservative designs but has recently reemerged with a sleek, modern look designed to attract luxe car buyers. The LC Series comes with pre-collision technology to detect pedestrians and an infotainment media package. The upgraded version comes with sports seats, a retractable rear spoiler and 21-inch aluminum-alloy wheels.
- Mercedes-Benz GLE-Class – Price: different models available for $70,000 – $115,000
The top-selling luxury car brand of 2016, Mercedes-Benz is known for beautiful design and great engineering, and the price you pay reflects it. Its GLE-Class of vehicles comes in 3 performance-oriented trims with twin-turbocharged 385-570 horsepower engines (depending on the model). Best suited for city driving, these vehicles have been in high-demand among Canadian drivers for a number of years.
- Porsche Macan – Price: $54,100-$99,000 (Turbo package)
Also owned by Volkswagen, Porsche is even more luxurious and glamorous than its Audi counterpart. Best known for its sport cars, it also offers trendy coupes and stylish SUVs. As of 2018, the Macan was one of the brand’s best-selling cars in Canada and comes in a widely varying price range. The upgraded Turbo package has a 440 horsepower engine and can go from 0-100 km/h in 4.4 seconds. Its top speed reaches 272 km/h.
Unless you’re prepared to pay cash, finding good financing is an important step towards buying a luxury car. Most cars are bound to depreciate, so understand how much you’re paying, how much debt you’re taking on, and the financial position you’ll be in by the end of your loan term. Speak with a financial advisor and compare your car options carefully until you’re sure you’ve found the best deal available.
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